Economics Dictionary of ArgumentsHome
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Gerrit De Geest on Risk Perception - Dictionary of Arguments
Parisi I 446 Risk/risk perception/incentives/carrots/sticks/Dari-Mattiacci/De Geest: Individuals might be risk-averse or risk-loving. Obviously, their reaction to probabilistic carrots and sticks changes. Yet, it is important to isolate the effect of risk-aversion from the confounding effects of increased wealth: carrots make individuals richer while sticks make them poorer, so that their behavior might change not only as a result of risk-bearing but also because of endowment effects. >Endowment effect. Risk aversion: risk-aversion makes individuals react more strongly to sticks than to carrots. (…) the probability of applying a stick needs to balance the individual’s utility when exerting effort with his utility when paying the stick, times an additional factor less Parisi I 447 than one, which is the ratio of the marginal disutilities of the stick and effort. This factor magnifies the effect of sticks (requires lower probabilities of monitoring). Sticks have a stronger incentive effect than carrots because compliance in the case of sticks is risk-free, while it implies risk in the case of carrots. The case of risk-loving individuals yields the opposite result. >Incentives/Dari-Mattiacci/De Geest. Giuseppe Dari-Mattiacci and Gerrit de Geest. “Carrots vs. Sticks”. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
De Geest, Gerrit Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017 |
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