Compensation, Incentives, And The Duality of Risk Aversion And Riskiness  

Oleh:

Ross, Stephen A.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 59 no. 1 (Feb. 2004), page 207-226.
Topik: compensation; risk aversion; incentives; put & call options; stock brokers; correlation analysis; studies
Fulltext: p 207.pdf (117.17KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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The common folklore that giving options to agents will make them more willing to take risks is false. Some first steps toward an analysis of the derived risk preferences of agents given common types of incentive structures are taken. Necessary and sufficient conditions under which the folk intuition is valid are found. The question is answered of when option-like incentive schedules lead to increased risk taking. A notion of compensating variation is developed that disentangles 3 separable effects that a fee schedule has on an agent's attitudes towards risk. This result allows the drawing of important distinctions between, say, the incentive impact of put options and those of call options. It is shown that for the usually assumed preferences, put options make individuals less averse, while call options do not. Some observations are made on the equivalence between making gambles riskier and making agents behave as though they were more risk averse.

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