Changes In Risk Attitudes Research Articles

Do retail investors gamble more during lockdown?

AbstractRetail investors are known to favor stocks with lottery‐like features and trade too much. Less is known about their intertemporal demand and risk‐taking behavior in lottery‐type stocks. We use intraday transaction data between September 2019 and June 2020 from the Stock Exchange of Thailand to test how individual's risk attitude changes with respect to decline in their wealth prospects during the COVID‐19 lockdown. The behavior of the investors supports a reference dependent preference. Confronted with lowered wealth prospects, retail investors substantially reduce their underweighting in nonlottery stocks while increasing overweighting and turnover frequency in lottery stocks resulting in deteriorating portfolio performance.

Peer-mediated Social Signals Alter Risk Tolerance in Teenage Boys Depending on their Peers.

During early adolescence, peer influences play a crucial role in shaping learning and decision preferences. When teens observe what their peers are doing, they can learn and change their behavior, especially when they are taking risks. Our study incorporated an economical behavioral task and computational modeling framework to examine whether and how early male adolescents' risk attitudes change when they see information about their peers' choices. We recruited 38 middle school male students aged 12-15 years. The experiment consisted of three sessions: The first and third sessions were designed to evaluate the risk attitude of the participants. In the second session, participants were asked to guess the choices made by their peers, and then, the computer gave them feedback on the correctness of their predictions. Each participant was randomly assigned to risk-taking or risk-averse peers. Our results revealed that teenagers who predicted risk-averse peers exhibited significant declines in their risk attitudes during the last session. On the other hand, participants with risk-seeking peers exhibited a significantly higher level of risk attitudes after predicting their peers. The data showed that these peer-biased changes in risk attitudes are proportional to the gap between teens and their peers' risk perspectives. Results showed that their perspectives aligned closer after receiving the information, and approximately a third of the gap was eliminated. Here, by combining choice data and computational modeling, we demonstrate that risky behavior is contagious among male adolescents. According to our data, peer-biased risk contagion, a socially motivated and deliberate process, is associated with social distance in teens. There's no causal directionality here, but we could speculate that peer influence goes hand-in-hand with social integration as an adaptive process.

The stability of physicians’ risk attitudes across time and domains

Risk attitude is known to influence physicians' decision-making under uncertainty. Research on the risk attitudes of physicians is therefore important in facilitating a better understanding of physicians' decisions. However, little is known about the stability of physicians' risk attitudes across domains. Using five waves of data from a prospective panel study of Australian physicians from 2013 to 2017, we explored the stability of risk attitudes over a four-year period and examined the association between negative life events and risk attitudes among 4417 physicians. Further, we tested the stability of risk attitude across three domains most relevant to a physician's career and clinical decision-making (financial, career and clinical). The results showed that risk attitude was stable over time at both the mean and individual levels but the correlation between domains was modest. There were no significant associations between negative life events and risk attitude changes in all three domains. These findings suggest that risk attitude can be assumed to be constant but domain-specificity needs to be considered in analyses of physician decision-making.

Changes in risk attitudes vary across domains throughout the life course

Risk attitudes are important predictors of various economic decisions and socioeconomic outcomes. Although studies show that peoples’ general willingness to take risks decreases with age, there are few reports on the age dependence of domain-specific risk attitudes. Drawing on the Socio-Economic Panel (SOEP), this study employs a proxy variable approach to disentangle age from periodic and cohort effects, while allowing the age effect to take a flexible functional form. Our analyses indicate that risk attitudes are domain-specific. Additionally, we show that age-profiles of general rather than domain-specific risk attitudes can lead to misleading results when they are used to predict life outcomes.

A multi-attribute utility framework for patients to determine childbirth method considering uncertainties, patient preferences, risk attitudes, and pregnancy complications

Despite increasing advocacy of shared decision-making (SDM) approaches to maternal healthcare and the significance of including patient preferences in choosing the childbirth method, quantitative research to help the patients to make informed decisions is still lacking. This paper proposes a multi-attribute decision framework to guide the patients toward the best childbirth method considering their preferences, risk attitudes, pregnancy complications, and uncertainties during the delivery process. Valuations of health condition, intrapartum pain, duration of the process, recovery time, and feeling of empowerment constitute the attribute set of our model. Four major pregnancy complications - malpresentation, anemia, eclampsia, and gestational diabetes have been considered to assess the patients’ pregnancy complication state. A deidentified dataset from the maternal delivery unit of the Dhaka Medical College (DMC) Hospital in Bangladesh, which was screened and validated by doctors from three different hospitals, was utilized to present a case study. For mothers with no complications, vaginal delivery (VG) is preferred regardless of the risk attitude. For mothers with single difficulty, as risk attitude changes from risk-averse to risk-seeking, the optimal strategy shifts from cesarean to VG. Cesarean delivery is preferred regardless of the risk attitude for mothers with more than one complication. Sensitivity analyses reveal that valuations of health conditions and intrapartum pain are the most sensitive attributes. The decisions obtained from the model are found consistent with the decision taken at DMC 85.25% times. This paper presents new insights to foster SDM and improve the childbirth experience.

COVID-19 pandemic, limited attention, and analyst forecast dispersion

This paper investigates the effect of the COVID-19 pandemic on analysts’ forecast dispersion. We find that analysts’ exposure to the COVID-19 lockdown reduces the dispersion of their forecasts. Along with the forecast dispersion, the number of earnings forecasts issued by treated analysts decreases, supporting the channel of attention distraction. Moreover, there is no significant difference between optimistic and pessimistic forecasts, against the explanation of risk attitude change. We find our conclusion is robust to a staggered DID model and numerous robustness tests. Our finding contributes to the dispute regarding the pandemic's effect on analyst forecast behavior.

Emotions and Risk Attitudes

Previous work has shown that preferences are not always stable across time, but surprisingly little is known about the reasons for this instability. I examine whether variation in people's emotions over time predicts changes in risk attitudes. Using a large-panel dataset, I identify happiness, anger, and fear as significant correlates of within-person changes in risk attitudes. Robustness checks indicate a limited role for alternative explanations. An event study around the death of a parent or child further confirms a large relationship between emotions and risk attitudes. (JEL D12, D81, D91, I31)

Changes in Risk Attitudes Vary Across Domains Throughout the Life Course

Changes in Risk Attitudes Vary Across Domains Throughout the Life Course

Changes in Risk Attitudes Vary Across Domains Throughout the Life Course

Changes in Risk Attitudes Vary Across Domains Throughout the Life Course

Utilitarianism and social discounting with countably many generations

We extend Harsanyi’s (1955) utilitarianism theorem to an infinite-horizon multi-generation setting: Under some additional assumptions, the Pareto condition is equivalent to utilitarian aggregation and the utilitarian weights are unique. We analyze the properties of utilitarian weights, such as the limiting behavior of utilitarian weights for distant future generations, and the comparative statics of utilitarian weights as the social discount factor or the social risk attitude changes. Among other findings, we show that a higher social discount rate is associated with a more unequal assignment of utilitarian weights across generations.

Countably Infinite Utilitarian Aggregation

We extend Harsanyi's (1955) utilitarianism theorem to an infinite-horizon multi-generation setting: Under some additional assumptions, the Pareto condition is equivalent to utilitarian aggregation and the utilitarian weights are unique. Our results facilitate analysis of the properties of utilitarian weights, such as the limiting behavior of utilitarian weights for distant future generations, and the comparative statics of utilitarian weights as the social discount factor or the social risk attitude changes. Among other findings, we show that a higher social discount rate is associated with a more unequal assignment of utilitarian weights across generations.

Peer Effects and Risk Sharing in Experimental Asset Markets

Previous research has documented strong peer effects in risk taking, but little is known about how such social influences affect market outcomes. Since the consequences of social interactions are hard to isolate in financial data, we design an experimental asset market with multiple risky assets and study how exogenous variation in real-time information about the portfolios of peer group members affects aggregate and individual risk taking. We find that peer information reduces under-diversification through changes in risk attitudes that last beyond the market environment. The effect of information depends on its framing: highlighting the highest earning trader increases willingness to take risk and average exposure in the market. Our results show that peer information is an important determinant of earnings volatility in financial markets, and we discuss implications for institutional design.

Is human life worth peanuts? Risk attitude changes in accordance with varying stakes.

Risk aversion is well-known as a general and robust characteristic of people’s decision making: people are less likely to gamble when they are unsure if they will obtain the expected value of the bet made. The “peanuts effect” is, however, an exception to this general rule. The “peanuts effect,” which states that people are more willing to gamble when playing for “peanuts” (a small outcome), has been stably observed in the context of a small monetary stake. We conducted two types of experiments to verify whether the peanuts effect still occurred when the type of stakes changed. We had two main findings. On the one hand, people tended to gamble more for a qualitatively smaller value when the stake was material in nature, meaning that the “peanuts effect” occurred with a qualitatively low stake. On the other hand, people were willing to take a risk for a qualitatively larger value when the stake was a human life: this is the opposite phenomenon of the “peanuts effect.”

Collective Risk Preferences in Small Groups: A Structural Estimation Approach

In this study, we investigate the changes in risk attitudes and risk perceptions that occur while collective risk preferences are formed. Data on risk attitudes and risk perceptions were collected in lottery choice experiments. The subjects participated in individual choice tasks and group choice tasks. The observed choice data are analyzed by using a structural estimation approach. The behavioral models used for structural estimation are based on expected utility theory (EUT), prospect theory (PT) and model parameters. The superiority of the models is also examined. The results of the structural estimations show that 1) overall, the PT specifications are superior to the EUT specifications, 2) regardless of whether the participants are male or female, there are no significant disparities between the subjective and objective risks in the individual and group decisions, 3) risk attitudes become more risk-loving (and closer to risk neutral) during the process of forming collective risk preferences, 4) the switching phenomena that occur during Holt and Laury’s experiment with lottery pairs can be explained only by changes in risk attitudes, which are independent of the riskiness of lotteries, and 5) these results are obtained regardless of the majority or the unanimous agreement rules.

Deficit of state-dependent risk attitude modulation in gambling disorder

Gambling disorder (GD) is often considered as a problem of trait-like risk preference. However, the symptoms of GD cannot be fully understood by this trait view. In the present study, we hypothesized that GD patients also had problem with a flexible control of risk attitude (state-dependent strategy optimization), and aimed to investigate the mechanisms underlying abnormal risk-taking of GD. To address this issue, we tested GD patients without comorbidity (GD group: n=21) and age-matched healthy control participants (HC group: n=29) in a multi-step gambling task, in which participants needed to clear ‘block quota’ (required units to clear a block, 1000–7000 units) in 20 choices, and conducted a task-functional magnetic resonance imaging (fMRI) experiment. Behavioral analysis indeed revealed a less flexible risk-attitude change in the GD group; the GD group failed to avoid risky choice in a specific quota range (low-quota condition), in which risky strategy was not optimal to solve the quota. Accordingly, fMRI analysis highlighted diminished functioning of the dorsolateral prefrontal cortex (dlPFC), which has been heavily implicated in cognitive flexibility. To our knowledge, the present study provided the first empirical evidence of a deficit of state-dependent strategy optimization in GD. Focusing on flexible control of risk attitude under quota may contribute to a better understanding of the psychopathology of GDs.

Do disaster experience and knowledge affect insurance take-up decisions?

This study examines the effect of experience and knowledge on weather insurance adoption. First, we conduct insurance games with farmers, and find that the treatment improves real insurance take-up by 46%. The effect is not driven by changes in risk attitudes and perceived probability of disasters, or by learning of insurance benefits, but is driven by the experience acquired in the game. Second, we find that providing information about the payout probability has a strong positive effect on insurance take-up. Finally, when subjects receive both treatments, the probability information has a greater impact on take-up than does the disaster experience.

On the simultaneity bias in the relationship between risk attitudes, entry into entrepreneurship and entrepreneurial survival

ABSTRACTWe consider the simultaneity bias when examining the effect of individual risk attitudes on entrepreneurship. We demonstrate that entry into self-employment is related to changes in risk attitudes. We further show that these changes are correlated with the probability to remain in entrepreneurship.

Familiy Transitions and Risk Attitude

We use the German Socio Economic Panel to analyze the impact of life changing events on individuals’ risk tolerance levels over time, which is reported in response to a question on individuals’ willingness to take risks. The dataset follows a representative sample of the German population. We find substantial changes in risk attitudes over time with respect to getting married or separating from a partner, giving birth to a child for the first time, and providing care to a family member. Furthermore, we find that these effects are associated with household structure. In particular, we observe that the risk tolerance of individuals that are referred as the head of household demonstrates more extreme changes associated with life events while having children moderates the changes associated with the dissolution of households.

Violence, Psychological Disorders, and Induced Changes in Risk Attitudes in Colombia

Shocks and traumatic experiences can alter individual behavior and deplete the ability to make economic decisions. Using data from individuals residing in two war-torn regions in Colombia, I analyze how direct exposure to violence induces changes in risk attitudes, and find that more severe and recent episodes of violence bring about higher levels of risk aversion in the gains and ambiguity domains. Consistent with evidence from psychology studies, the effect is driven by the incidence of anxiety disorders. Violence can thus thwart the economic recovery of victims and have transcending impacts on poverty dynamics through a behavioral channel.

Risk-Sensitive Multiagent Decision-Theoretic Planning Based on MDP and One-Switch Utility Functions

In high stakes situations decision-makers are often risk-averse and decision-making processes often take place in group settings. This paper studies multiagent decision-theoretic planning under Markov decision processes (MDPs) framework with considering the change of agent’s risk attitude as his wealth level varies. Based on one-switch utility function that describes agent’s risk attitude change with his wealth level, we give the additive and multiplicative aggregation models of group utility and adopt maximizing expected group utility as planning objective. When the wealth level approaches infinity, the characteristics of optimal policy are analyzed for the additive and multiplicative aggregation model, respectively. Then a backward-induction method is proposed to divide the wealth level interval from negative infinity to initial wealth level into subintervals and determine the optimal policy in states and subintervals. The proposed method is illustrated by numerical examples and the influences of agent’s risk aversion parameters and weights on group decision-making are also analyzed.