Bridging finance and behavioral scholarship on agent risk sharing and risk taking

Abstract

A large volume of research has examined agent risk taking and the contracting problem of risk sharing - the sharing of performance risk across agent and principal - to advance our knowledge of mechanisms that can align the assumed divergent interests and risk preferences of the managerial agent and shareholder principal. This research has been undertaken in two streams - financial economics and behavioral science - that appear to have operated in silos, using different theoretical frameworks and methodological approaches. To identify opportunities for cross-fertilization and to advance future research in both streams, we review the theoretical paradigms and empirical findings deriving from b..