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My Risk, Your Risk, and Our Risk: Costly Deviation in Delegated Risk-Taking Environments

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  • Jason A. Aimone
  • Xiaofei Pan

Abstract

Risk choice delegation is pervasive in financial environments. While previous research has explored how agents balance self-interest with interests of passive investors little is known about how this balance is achieved when investors voluntarily decide the amount to invest or when risk is shared between agents and investors. Our findings show agents engage in costly deviation from their preferred risk level when choosing risk exposure levels, revealing a form of prosocial preferences. We further find that this deviation is sensitive to investment levels and institutional features like whether risk is shared and accountability opportunities by investors or a third party.

Suggested Citation

  • Jason A. Aimone & Xiaofei Pan, 2022. "My Risk, Your Risk, and Our Risk: Costly Deviation in Delegated Risk-Taking Environments," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 23(4), pages 371-387, November.
    • Handle: RePEc:taf:hbhfxx:v:23:y:2022:i:4:p:371-387
    DOI: 10.1080/15427560.2022.2055032
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