Foreign language effect on risk preference: The framing effect, loss aversion, and risk aversion

Abstract

This paper examines how a non-native language influences Mandarin-English bilinguals’ risk judgment and risk tolerance, and their susceptibility to affective biases including the framing effect, loss aversion, and risk aversion. Specifically, this study hypothesized that processing information in a foreign language reduces emotionality and promotes bias-independent decisions. A total of 244 Chinese college students, who acquired English in a decontextualized classroom setting, completed the same questionnaire presented in either their native language Mandarin or foreign language English. Both their risk judgement and risk tolerance were tested in two domains, gain and loss, by various adaptations of the Asian Disease problem. Results indicate that participants’ susceptibility to the framing effect and loss aversion was significantly reduced when risk judgement questions were presented as binary decisions in English. However, when testing their risk tolerance in a series of stepwise questions, foreign language did not result in significant differences in participants’ risk tolerance level nor mitigate their risk averse tendency, likely due to desensitization. Age 7 of foreign language acquisition did not significantly influence susceptibility to biases. Overall, these findings suggest that foreign language lessened certain affective biases in risk judgment and may indicate more systematic processing of information.