Risk Aversion, Prospect Theory, And Strategic Risk In Law Enforcement: Evidence From An Antitrust Experiment

In this paper the authors investigate the effects of risk preferences and attitudes towards risk on optimal antitrust enforcement policies. First, they observe that risk aversion is negatively correlated with players' proclivity to form a cartel, and that increasing the level of fines while reducing the probability of detection enhance deterrence. They also notice that players' propensity towards communication drops right after detection even if the collusive agreement was successful, and it declines as the sum of the fines paid by a subject increases.