Risk Taking and Risk Sharing: Does Responsibility Matter?

Abstract

Risk sharing arrangements diminish individuals’ vulnerability to probabilistic events that negatively affect their financial situation. This is because risk sharing implies redistribution, as lucky individuals support the unlucky ones. We hypothesize that responsibility for risky choices decreases individuals’ willingness to share risk by dampening redistribution motives, and investigate this conjecture with a laboratory experiment. Responsibility is created by allowing participants to choose between two different risky lotteries before they decide how much risk they share with a randomly matched partner. Risk sharing is then compared to a treatment where risk exposure is randomly assigned. We find that average risk sharing does not depend on whether individuals can control their risk exposure. However, we observe that when individuals are responsible for their risk exposure, risk sharing decisions are systematically conditioned on the risk exposure of the sharing partner, whereas this is not the case when risk exposure is random.

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