The impact of the availability heuristic on risk perception with moderating effects of accountability: An experiment

The introduction of the Banking Executive Accountability Regime (BEAR) has heightened interest in accountability mechanisms for managing the risk of lowprobability events. We have designed an experiment to investigate how the occurrence of a low-probability disaster event affects risk perception in a sequential loan assessment task. Accountability is invoked with heightened financial and reputational consequences for those who underestimate, and hence undermanage, the risk. In the event of low accountability treatment, risk perception increases after a disastrous event, consistent with the availability heuristic. In the high accountability treatment, participants make more conservative risk judgments. This study highlights the two main potential benefits of accountability. First, accountability motivates conservative judgment and helps in avoiding significant losses from low-probability events. Second, accountability for adverse outcomes helps avoid some of the excessive risk-taking induced by financial incentives.