The Effect of an Education in Business and Economics on the Behaviour in a Moral Hazard Situation

Sammanfattning: Market failures being highlighted during the most recent financial crisis, aroused our interest of moral hazard. We study behaviour in a moral hazard situation on an individual level. More precisely, we investigate the effect of an economics and business education at the Stockholm School of Economics (SSE) on moral hazard behaviour (Indoctrination effect). Additionally, it is investigated if the people who choose to study at SSE have an inclination to act in a certain way (Selection effect), and if this combined with the education have an impact on behaviour in a moral hazard situation. This is primarily researched using three linear regressions estimated with the Ordinary Least Squares method. The findings conclude that third-year students at SSE are more risk willing with their own money compared to first-year students and non-business students. Additionally third-years are less prone to moral hazard than first-year students. This suggests that the indoctrination effect increases students' risk willingness, however at the same time decrease the risk taking in a moral hazard situation. There is no selection effect, and the indoctrination effect and selection effect in combination do not imply changed behaviour in a moral hazard situation either. However, first-year students tend to risk more in a moral hazard situation. Future research on behaviour in a moral hazard situation on an organizational level is suggested, to fully understand implications of our findings.