Risk-seeking Behavior Research Articles

Loan Loss Provisioning and Efficiency: A Study of Frontier Market Banks

This paper investigates frontier market bank managers’ use of the discretionary component of loan loss provisions to manage earnings and its association with efficiency. Studies have documented that bank managers use loan loss provisions to smooth earnings, yet the association of provisioning with efficiency in frontier markets has not been empirically examined. Employing stochastic frontier analysis as a method of efficiency assessments in 22 frontier market countries, results show bank efficiency declined steadily from 2001 to 2018. This finding is contrary to economic efficiency theory and suggests that loan quality difficulties have persisted despite nations enjoying increasing economic development. Regression analysis results further reveal that earnings management (EM) via loan loss provisioning is inversely related to efficiency. Study findings support prospect theory, indicating that managers engage in risk-seeking behavior while making risk-averse judgments. Overall, the study results imply that banks should expand loan provisioning strategies to optimize resource allocation and business performance.

Organizational Response to Performance Shortfalls: The Role of Self-confidence and Time Slack

The behavioral theory of the firm (BTOF) states that performance shortfalls trigger organizational responses seeking to restore performance above the aspiration level. However, previous research has shown ambiguous support for this proposition. One explanation for this lack of support is subjective performance assessments: Performance shortfalls might not be perceived as problematic by decision makers, which leads them to underestimate the need for a response. In this paper, I argue that decision makers’ self-confidence promotes optimistic interpretations of performance assessments when performance is ambiguous enough. However, when performance shortfalls are unambiguous, I predict that decision makers’ self-confidence leads to the opposite consequence, strong organizational responses, due to risk-seeking behavior. In addition, in this paper I propose that organizational slack is a source of ambiguity in assessing performance feedback allowing for favorable interpretations. Particularly, I propose that decision makers prone to make optimistic performance assessments overestimate the value they can extract from slack, which leads them to underestimate the need for a response to performance shortfalls. I find support for my hypotheses by analyzing 101,146 first down decisions from the National Football League (NFL) between seasons 2009 and 2016.

The Impact of Consistent and Inconsistent Performance Feedbacks on Corporate Social Responsibility

Behavioral theory of the firm (BTOF) remains under-utilized to understand the impact of firms on the society. This study pays attention to the effects of multiple performance aspirations and develops a more holistic view about how performance feedback influences social behavior of firms. Leveraging the global trend that forces firms to perform CSR activities, this study integrates BTOF and prospect theory to reveal that firms become risk averse by spending more on CSR activities when they fail to meet both historical and social aspiration levels. The analysis also shows that firms exhibit risk-seeking behavior by spending less on CSR activities when they: (1) perform better than both historical and social aspiration levels, and (2) meet historical aspiration level but fail to meet social aspiration level.

Other people's money: A comparison of institutional investors

Using unique equity ownership data, we investigate the stock picking preferences and return forecasting performances of institutional investors that manage their own money against those that manage others’. We reveal that these investors’ preferences significantly differ in historical patterns, liquidity and prudence when picking stocks. In particular, ‘own money managers’ display a risk-seeking behaviour whereas “others’ money managers” exhibit risk-averse characteristics. However, our results indicate that both types of investors are well informed, albeit own money managers excel in the short-term while others’ money managers are successful in the long-term.

Risk perception of earthquakes: Modeling conception of willingness to pay and prospect theory

Natural disasters have greatly threatened people's lives and properties. In recent years, disaster management has become a key issue for the sustainable development of a society. In this regard, understanding how people perceive disasters is needed to formulate better disaster management strategies and enhance the resilience of the society. This research seeks to study risk perception and relevant attitudes, which are the fundamental factors of human behavior under the threat of disaster impact. A stated preference survey is conducted to investigate people's willingness to pay for earthquake risk reduction, where the effect of information is also the concern and incorporated in survey design. Thereupon, a multiple-bounded dichotomous choice model and an ordered probit model are estimated to quantify risk attitudes toward earthquakes as the monetary value. Results suggest that factors, such as higher socioeconomic status, more family members, and the residence aged above 40 years old, have positive effects on risk perception. In addition, presenting previous earthquake disaster damage information may increase individuals' risk perception. The prospect theory is employed in the study to establish a theoretical model to capture people's risk-seeking and/or risk-averse behavior, thereby more sophisticatedly reflecting the behavioral realism related to disaster preparedness. Based on the improved understanding of risk perception and relevant attitudes, the associated authorities may be able to develop solid resilience-enhancement programs and more effectively strengthen disaster response efficiency, thereby minimizing the damages and injuries caused by earthquakes.

Strategic bidding in freight transport using deep reinforcement learning

AbstractThis paper presents a multi-agent reinforcement learning algorithm to represent strategic bidding behavior by carriers and shippers in freight transport markets. We investigate whether feasible market equilibriums arise without central control or communication between agents. Observed behavior in such environments serves as a stepping stone towards self-organizing logistics systems like the Physical Internet, while also offering valuable insights for the design of contemporary transport brokerage platforms. We model an agent-based environment in which shipper and carrier actively learn bidding strategies using policy gradient methods, posing bid- and ask prices at the individual container level. Both agents aim to learn the best response given the expected behavior of the opposing agent. Inspired by financial markets, a neutral broker allocates jobs based on bid-ask spreads. Our game-theoretical analysis and numerical experiments focus on behavioral insights. To evaluate system performance, we measure adherence to Nash equilibria, fairness of reward division and utilization of transport capacity. We observe good performance both in predictable, deterministic settings ($$\sim $$ ∼ 95% adherence to Nash equilibria) and highly stochastic environments ($$\sim $$ ∼ 85% adherence). Risk-seeking behavior may increase an agent’s reward share, yet overly aggressive strategies destabilize the system. The results suggest a potential for full automation and decentralization of freight transport markets. These insights ease the design of real-world market platforms, suggesting an innate tendency of markets to reach equilibria without behavioral models, information sharing or explicit incentives.

Development and validation of the Reward Deficiency Syndrome Questionnaire (RDSQ-29).

The reward deficiency syndrome (RDS) integrates psychological, neurological, and genetic factors of addictive, impulsive, and compulsive behaviors. However, to date, no instrument has been validated to assess the RDS construct. The present study developed and tested a tool to assess RDS. Data were collected on two college and university samples. Exploratory factor analysis (EFA) and confirmatory factor analysis (CFA) were performed on Sample 1 (N = 1726), and confirmatory analysis was conducted on an independent sample (N = 253). Impulsivity and sensation-seeking were assessed. Based on EFAs, a 29-item Reward Deficiency Syndrome Questionnaire (RDSQ-29) was developed, containing four subscales (lack of sexual satisfaction, activity, social concerns, and risk-seeking behavior). CFA indicated good fit (comparative fit index (CFI) = 0.941; Tucker-Lewis index (TLI) = 0.933; root mean square error of approximation (RMSEA) = 0.068). Construct validity analysis showed strong relationship between sensation-seeking and the RDS scale. The RDSQ-29 is an adequate scale assessing psychological and behavioral aspects of RDS. The RDSQ-29 assesses psychological and behavioral characteristics that may contribute to addictions generally.

LEVEL OF EDUCATION AND ENTREPRENUERIAL RISK ATTITUDES OF MARKET WOMEN IN LAGOS, NIGERIA

Every economy who intends to grow will never put women entrepreneurial drives and skills at the backspace as they serve as engine room for every prosperous economy. Nonetheless, female entrepreneurs lack most often the financial access and the right human capacity development, which impinge their business growth due to their various mindsets’ drawbacks created by poor risk attitude. This study therefore is specifically aimed at evaluating the relationship between level of education and entrepreneurial risk attitudes with particular reference to market women in Lagos, Nigeria. The study adopted questionnaire as a source of data collection among 123 respondents, drawn from 15 purposive selected markets in Lagos, Nigeria. Correlation technique approach was adopted to explain the relationships between the measuring constructs in the study. The findings from the study revealed a not significant relationship between entrepreneurs’ level of education and their entrepreneurial risk attitudes (r = .080, p = .380 > 0.05). The study further established a correlation between level of education and entrepreneurial risk attitudes dimensions (risk aversion, risk neutrality and risk preference) where no association exist between level of education and risk aversion (r = .154, p = .089> 0.01). However, a strong positive and significant relationship were found between level of education and risk neutrality (r = .526, p = .000< 0.01) and risk preference (r = .524, p = .000< 0.01) respectively. The study conclusion showed that risk seeking behaviour is not moderated in the entrepreneurial pursuit of market women in Lagos State. The responses of the respondents largely proved that the level of education among market women hasn’t created any form of risk consciousness. Thus, the researchers recommended that risk management education should be considered as a focal point in the development of the market women psychologically and sociologically to get attracted to insurance in order to manage possible entrepreneurial failure.

Selfish risk-seeking can provide an evolutionary advantage in a conditional public goods game.

While cooperation and risk aversion are considered to be evolutionarily advantageous in many circumstances, and selfish or risky behaviour can bring negative consequences for individuals and the community at large, selfish and risk-seeking behaviour is still often observed in human societies. In this paper we consider whether there are environmental and social conditions that favour selfish risk-seeking individuals within a community and whether tolerating such individuals may provide benefits to the community itself in some circumstances. We built an agent-based model including two types of agent—selfish risk-seeking and generous risk-averse—that harvest resources from the environment and share them (or not) with their community. We found that selfish risk-seekers can outperform generous risk-averse agents in conditions where their survival is moderately challenged, supporting the theory that selfish and risk-seeking traits combined are not dysfunctional but rather can be evolutionarily advantageous for agents. The benefit for communities is less clear, but when generous agents are unconditionally cooperative communities with a greater proportion of selfish risk-seeking agents grow to a larger population size suggesting some advantage to the community overall.

Approaching the Causes of Unintentional Injuries in the School Environment: A Panel Analysis of Survey Data From Germany.

Previous research on the correlates of unintentional school injuries is based on either process or cross-sectional data. This study aims at approaching the causal effects of risk-seeking behavior, mental health problems, physical activity, and exposure to bullying on unintentional injuries in the school environment by relying on longitudinal survey data. The data comes from a German panel survey, including more than 10,000 students. We estimate fixed-effects regression models that only take into account the variation within participants and are therefore most suitable for establishing causal inferences. We find an increase in risk-seeking behavior on the individual level to yield an increase in students' likelihood to suffer injuries during physical education and on the schoolyard or in the school building. The same holds true for an increase in mental health problems. Finally, students who expand their degree of physical activity in club sports also show a higher risk of unintentional injuries. Interventions aimed at reducing too risky behavior and mental health problems may help prevent unintentional injuries in the school environment. Since students who increase their activities in club sports are also more prone to school injuries, preventive efforts should include this group of adolescents as well.

Risk-Seeking Behavior and Its Implications for the Optimal Decision Making of Annuity Insurers

This study investigates risk-seeking and optimal decisions of annuity providers. On the basis of a sample of U.S. life and annuity (L/A) insurers between 1997 and 2016, the results show clear performance-dependent risk attitudes. Specifically, insurers with returns below aspiration levels take more risks, whereas those with returns above reference levels decrease their risk-seeking, which supports the basic propositions of the cumulative prospect theory (CPT). Given initial evidence of mixed risk preferences in the L/A insurance industry, we derive an annuity insurer’s optimal investment and business strategies in a CPT decision-making framework. We show that changing risk preferences considerably affect an annuity provider’s decisions. We further illustrate how risk management changes an annuity insurer’s optimal strategies. Our results suggest that risk management lowers downside risk and allows a loss-averse decision maker to assume more risk and achieve a higher level of utility.

Effects of sex and genotype in human APOE-targeted replacement mice on alcohol self-administration measured with the automated IntelliCage system before and after repeated mild traumatic brain injury.

Few studies have examined the association between APOE genotype and alcohol use. Although some of these studies have reported outcomes associated with a history of drinking, none have examined alcohol-seeking behavior. In addition, no preclinical studies have examined alcohol use as a function of APOE genotype with or without traumatic brain injury. Male and female human APOE3- and APOE4-targeted replacement (TR) mice were used to assess voluntary alcohol seeking longitudinally using a 2-bottle choice paradigm conducted within the automated IntelliCage system prior to and following repeated mild TBI (rmTBI). Following an acquisition phase in which the concentration of ethanol (EtOH) was increased to 12%, a variety of drinking paradigms that included extended alcohol access (EAA1 and EAA2), alcohol deprivation effect (ADE), limited access drinking in the dark (DID), and progressive ratio (PR) were used to assess alcohol-seeking behavior. Additional behavioral tasks were performed to measure cognitive function and anxiety-like behavior. All groups readily consumed increasing concentrations of EtOH (4-12%) during the acquisition phase. During the EAA1 period (12% EtOH), there was a significant genotype effect in both males and females for EtOH preference. Following a 3-week abstinence period, mice received sham or rmTBI resulting in a genotype- and sex-independent main effect of rmTBI on the recovery of righting reflex and a main effect of rmTBI on spontaneous home-cage activity in females only. Reintroduction of 12% EtOH (EAA2) resulted in a significant effect genotype for alcohol preference in males with APOE4mice displaying increased preference and motivation for alcohol compared with APOE3mice independent of TBI while in females, there was a significant genotype×TBI interaction under the ADE and DID paradigms. Finally, there was a main effect of rmTBI on increased risk-seeking behavior in both sexes, but no effect on spatial learning or cognitive flexibility. These results suggest that sex and APOE genotype play a significant role in alcohol consumption and may subsequently influence long-term recovery following traumatic brain insults.

The influence of earnings management on bank efficiency: the case of frontier markets

Frontier market banks fill key funding gaps in the markets they serve, resulting in increased evaluation (a positive) and earnings management (EM) (a negative). Examination of a large sample of banks in 22 frontier market countries from 2001 to 2018 reveals a downward trend in efficiency, indicating that loan quality issues persist despite increasing economic growth in the respective countries. Using stochastic frontier analysis to quantify efficiency and random effects and truncated regression to investigate the EM-efficiency relation, this study demonstrates that efficiency is negatively associated with EM. Furthermore, there was no clear relationship between bank size and efficiency, which counters economic efficiency theory and implies that frontier market banks absorb higher non-performing loan costs. The findings herein support prospect theory by demonstrating that managers engage in risk-seeking behaviour while making risk-averse decisions. Overall, the study's implications suggest that banks employ alternative loan provision practices to optimise resource allocation and, by extension, performance.

A Sense of No Future in an Uncertain Present: Altruism and Risk-Seeking among Syrian Refugees in Jordan

Abstract An unprecedented number of refugees from Syria have sought refuge in both the Middle East and Europe since the beginning of the civil war in Syria in 2011. We analyse the level of altruism and risk-seeking among Syrian civil war victims in Jordan. Our participants are university students who interact with both Jordanians and other Syrians. We find systematic variations in the revealed levels of altruism and their willingness to accept risk among Syrian refugees: feeling as if having no future coincides with both more egoistic and more risk-seeking behaviour. Refugees’ behavioural responses and their sense of no future correlate with their current personal living experiences. Our findings suggest that both the sense of no future and the accompanying behavioural responses are primarily associated with their current living conditions rather than with experiences directly related to the civil war in Syria.

Aiming for jackpot in the stock market

Learning outcomes The case illustrates the application of the prospect theory to risk-seeking investor behavior. It also provides an example that standard valuation methods such as discount cash flow), discount divided model and price multiples are not always applicable to value a stock. The students are exposed to a real situation where investors turn risk-seeking. The case offers insights into why irrational investors are attracted to risky assets and their probable socio-demographics. Case overview/synopsis This case illustrates a case when investors become risk-seeking and how the prospect theory explains the investors’ risk appetite. Energy Earth PCL is a coal importer and distributor incorporated in Thailand. Its shares had been suspended for trading before the Stock Exchange of Thailand allowed temporary trading in July 2019. A series of unfavorable events leading up to the temporary trading period suggest that the company’s financial health was severely distressed. Its book value was presumably negative and its going concern was threatened. However, investors still bought the shares with the hope of hitting the jackpot. The case presents an example of the psychological aspects of humans when investing in a stock market. With an application of the prospect theory, irrational risk-seeking behavior explains the motivation to invest in risky stocks. Complexity academic level Introductory finance course. Supplementary materials Teaching notes are available for educators only. Subject code CSS: 1 Accounting and Finance.

How aspirations interact to influence informal firms’ decision to formalize

Whether to formalize or not is a key decision for informal firms. We explore behavioral antecedents of this decision, arguing it is subject to financial and legitimacy aspirations of informal firms. Drawing on the institutional and behavioral theory of the firm literatures, we suggest that informal firms’ under (over) performance on financial and legitimacy aspirations are both independently and jointly associated with risk-seeking (risk-avoiding) behavior. We explore these effects through conducting three experimental vignette studies in a cluster informal firms in Ghana. The findings indicate that informal firms formalize when financial performance and perceived legitimacy is above aspiration level, yet do not do so when financial performance and perceived legitimacy is below aspiration. We also find that perceived legitimacy relative to aspiration positively moderates the effect of financial performance on informal firms’ decision to formalize.

Eliciting Risk Preferences Experimentally versus Using a General Risk Question. Does Financial Literacy Bridge the Gap?

The study investigates the stability of financial risk preference choices elicited from subjects by way of two methods, namely: experimentally elicited incentivized revealed risk preferences (IRRP) and (self-reported) perceived willingness to take a financial risk (PWTFR). The research further examines whether financial literacy (a human capital aspect) helps in reducing the gap between IRRP and PWTFR choices made by subjects. A total of 193 university students (where 53% were female) participated in the study. The subjects completed IRRP choices from four multiple price list (MPL) risk preference tasks and a financial literacy questionnaire. There is a tendency to anchor at extremes of risk-seeking behavior when subjects self-report their PWTFR choices. A paired t-test analysis of the two methods shows that the average responses from the two methods are significantly different. A random effect (RE) panel regression shows that an increase in financial literacy narrows the gap between IRRP and PWTFR choices. The study’s findings show that responses by subjects from a PWTFR general risk question (GRQ) and IRRP experiment are unstable and inconsistent. What people say in a survey does not always translate into what they do when faced with a risk preference choice dilemma. Financial literacy helps individuals to predict their risk attitudes more precisely.

Galvanic Vestibular Stimulation influences risk-taking behaviour

Risk-taking behaviour is an essential aspect of our interactions with the environment. Here we investigated whether vestibular inputs influence behavioural measurement of risk-taking propensity. We have combined bipolar Galvanic Vestibular Stimulation (GVS) with a well-known and established risk-taking behaviour task, namely the Balloon Analogue Risk Task (BART). A sham stimulation was used to control for non-specific effects. Left-anodal and right-cathodal GVS (L-GVS), which preferentially activates the vestibular projections in the right hemisphere, decreased the willingness to take risk during the BART compared with right-anodal and left-cathodal GVS (R-GVS), which activates the left hemisphere. This proved a specific vestibular effect which depends on GVS polarity. Conversely, no generic vestibular effect, defined as the adjusted average of L-GVS and R-GVS conditions compared to sham, emerged, excluding non-specific vestibular effects. Our results confirmed recent findings of a vestibular contribution to decision-making and strategy control behaviour. We suggest that the vestibular-mediated balancing of risk seeking behaviour is an important element of the brain's capacity to adapt to the environment.

Litigation Risk Transfer Mechanisms in Construction Dispute Resolution Process: Cross-Case Analysis

AbstractDisputes in construction projects are a common phenomenon around the world. The practice of approaching courts to resolve disputes, a risk-seeking behavior of parties in a dispute, is influ...

How Do Public Service Professionals Behave in Risky Situations? The Importance of Organizational Culture

Many situations in public service delivery are characterized by uncertainty about the potential negative consequences following decisions. These risky situations make the behavior of frontline professionals particularly important. But what shapes the risk perception and subsequent behavior of frontline professionals in risky situations? This article explores the idea that organizational culture provides part of the answer. To examine this, a comprehensive qualitative study with participant observations and interviews at five public hospital wards was conducted. The findings demonstrate the importance of organizational culture on risk perception and behavior in risky situations. Basic cultural assumptions related to professional discussion, administering medicine, grading of adverse events, and prioritizing follow-up activities matter to behavior in risky situations. In organizational cultures with high levels of trust and dialogue about decision-making, the health professionals rely on each other and ask for second opinions, when making decisions in risky situations. Conversely, in organizational cultures with little trust and professional discussion, the health professionals are less likely to ask for second opinions and follow up on risky situations, which increases the possibility of unintended, negative consequences. In this way, organizational culture can be a driver of risk-reducing and risk-seeking behavior among frontline professionals.