An experimental analysis of risk-shifting behavior

Pablo Hernández-Lagos, Paul Povel*, Giorgo Sertsios

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


We study risk-shifting behavior in a laboratory experiment, a setup that overcomes methodological hurdles faced by empiricists in the past. The participants are high-level managers. We observe risk shifting in a simple setup, but less so in a setup with a continuation value. Reputation effects also reduce risk shifting. When combined, a continuation value and reputation effects eliminate risk shifting. Our findings shed light on environments in which risk shifting is unlikely to happen, and why earlier studies produced conflicting results. In particular, our findings show that managers' concerns with their own reputations are an important factor that mitigates risk shifting.

Original languageEnglish
Pages (from-to)68-101
Number of pages34
JournalReview of Corporate Finance Studies
Issue number1
StatePublished - 2017

Bibliographical note

Publisher Copyright:
© The Author 2016.


  • Activities of Daily Living
  • Analysis of Variance
  • Choice Behavior
  • Health Services Research
  • Health Status Indicators
  • Human
  • Likelihood Functions
  • Models, Statistical
  • Occupations
  • Socioeconomic Factors
  • Support, Non-U.S. Gov't
  • Support, U.S. Gov't, P.H.S.
  • Treatment outcome


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