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In this paper we investigate the eects of risk preferences and attitudes towards risk on opti- mal antitrust enforcement policies. First, we observe that risk aversion is negatively correlated with players' proclivity to form a cartel, and that increasing the level of nes while reducing the probability of detection enhance deterrence. This conrms that the design of an optimal law enforcement scheme must keep risk attitudes into account, as suggested by Polinsky and Shavell (2000). We 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 nes paid by a sub- ject increases. This eect could be explained by availability heuristic (Kahneman, Slovic, and Tversky 1982) { a cognitive bias, where people's perception of a risk is based on its vividness and emotional impact rather than on its actual probability. Our results also conrm the crucial role of strategic risk considerations (Blonski, Ockenfels, and Spagnolo 2007) (analogous to risk dominance for one shot games) in determining the eects of leniency programs. Indeed, we show that the eectiveness of leniency programs in deterring cartels is mostly due to the increased risk of a cartel member being cheated upon when entering a collusive agreement, while the risk of a cartel being detected by an autonomous investigation of the Authority seems to play a less important role.

Risk Aversion, Prospect Theory, and Strategic Risk in Law Enforcement: Evidence from an Antitrust Experiment