Role Of Risk Attitudes Research Articles

What’s Different about Bank Holding Companies?

We develop a dynamic model of a BHC that encompasses both a trading desk and a loan desk, and explore the role of risk attitude and overleveraging by the trading desk. We trace the impact of monetary policy and market innovations on bank behavior in the presence of Basel III type regulations. We show that the value of the BHC is enhanced by operating both desks. We explore alternative regulatory remedies to ongoing efforts to ring-fence the proprietary trading business, and show that regulations that target bank governance can mitigate possible rogue trading and the overleveraging problem.

Impact of positive illusions and experience on decision to invest in own new venture

Objectives. The objective of this study is threefold: 1) to examine the effect of positive illusions on risk taking manifested in opportunity evaluation and investment decision; 2) to examine the mediating role of risk attitudes on the relationship between positive illusions and risk taking manifested in opportunity evaluation and investment decision; 3) to examine the moderating effect of experience on the relationship between positive illusions and risk taking manifested in opportunity evaluation and investment decision. Sample and setting. Research sample comprised 132 entrepreneurs aged between 19 and 63 (M = 40.6; SD = 10.8) owning small, medium, and large-sized businesses. Hypotheses. 1) Individuals exhibiting higher positive illusions (overconfidence, unrealistic optimism, illusion of control) would take higher risk manifested in opportunity evaluation and investment decision. 2) Risk attitudes will mediate the relationship between positive illusions and risk taking manifested in opportunity evaluation and investment decision. 3) Experience will moderate the relationship between positive illusions and risk taking manifested in opportunity evaluation and investment decision. Statistical analysis and results. 1) Using simple linear regression it was found that only unrealistic optimism for rare positive events and illusion of control predicted risk taking manifested in investment decision. None of positive illusions explained opportunity evaluation. 2) Using PROCESS macro for mediation analysis it was found that domain-specific risk perception, rather than general risk tolerance, is statistically significant mediator of the relationship between unrealistic optimism for rare positive events and investment decision. 3) Moderation analysis via PROCESS macro showed that only entrepreneurial experience moderates the relationship between unrealistic optimism for rare positive events and investment decision using own savings. The limitations concerning gender and domain specificity of methods are discussed in the study.

A Cambodian smallholder farmer's choice between microfinance institutes and informal commercial moneylenders: the role of risk attitude

PurposeThe purpose of this paper is to examine the extent to which individual risk attitude determines a Cambodian smallholder's choice between a commercial informal loan and a credit from a licensed microfinance institution.Design/methodology/approachThe paper analyzes a sample of smallholder farmers in the Ratanakiri province in northeastern Cambodia, a country with a long history of microfinance and a saturated microcredit market. Employing a binary and a multinomial logit model, this paper assesses the effect of individual risk attitude on the choice of a financial instrument.FindingsThe results reveal a statistically significant relationship between the choice of a credit source and an individual's risk attitude: On average (c.p.) the less risk averse the smallholder is, the more they tend to prefer an unlicensed commercial lender.Practical implicationsThe findings suggest that less risk-averse individuals tend to take up riskier and generally more expensive informal loans. Measures to increase the safe access to financial services for less risk-averse borrowers as well as improvements in financial literacy should be undertaken to protect smallholders from taking risky choices.Originality/valueAlthough existing studies have examined the importance of risk attitudes between credit provider and borrower, they focus mainly on the lender's perspective. This paper provides new insights on how risk attitude influences the borrower's choice in Cambodia. Thus, this study is relevant for policymakers in countries with oversaturated microcredit markets and a high prevalence of informal lenders.

High-Efficacy Disease-Modifying Therapies in People with Relapsing–Remitting Multiple Sclerosis: The Role of Risk Attitude in Treatment Decisions

Risk attitude is defined as the willingness to tolerate risk to achieve a greater expected return. Limited information is available on how relapsing-remitting multiple sclerosis people's perceptions about disease trajectory and risk attitude may influence treatment choices. A non-interventional study applying principles of behavioral economics was conducted to assess willingness to receive unwarranted high-efficacy disease-modifying therapy (DMT) according to best-practice guidelines. People with relapsing-remitting multiple sclerosis (PwRRMS) according to 2010 McDonald criteria completed a survey on symptom severity, risk preferences, and management of simulated case scenarios mimicking the current treatment landscape. PwRRMS's choice for high-efficacy agents was established as the participant's selection of monoclonal antibodies for case scenarios with at least 2years of clinical and radiological stability. A total of 211 PwRRMS were studied (mean age 39.1 ± 9.5years, 70.1% female, mean Expanded Disability Status Scale score 1.8 ± 1.1). Almost 50% (n = 96) opted for a high-efficacy DMT despite the lack of evidence of disease activity. Younger age and risk-seeking behavior were associated with an increased likelihood of selecting unwarranted high-efficacy DMT [odds ratio (OR) 2.00, 95% confidence interval (CI) 1.02-3.93, p = 0.043, and OR 2.17, 95% CI 1.09-4.30, p = 0.027, respectively]. Clinical characteristics or subjective perception of symptom severity had no influence on participants' treatment choices. Identifying PwRRMS with risk-seeking behavior would be crucial to implementing specific educational strategies to manage information on disease prognosis, treatment expectations, and safety risk knowledge.

Bibliometric Assessment of Research on Risk Attitude of Entrepreneurs

The influence of the attitude towards risk on decisions that entrepreneurs take in business is a field of major interest reflected by the increasing number of published papers. This article analyzes the publications included in the Web of Science databases over 1991–2019 period and assesses the correlations made by specialists between certain features of risk attitude in entrepreneurship. Multiple information was evaluated: the number of published papers, information about authors and their nationality, the number of citations received by the selected papers. A keyword analysis, including occurrence, co-occurrence (link strength) and links between them and a keywords map was also performed with a software. The utility in using a bibliometric analysis is to help researchers and scholars to identify new research directions regarding the role of risk attitude and the decision-making process in entrepreneurship.

Role of risk attitude and time preference in preventive aspirin use adherence.

Poor adherence to medication that is taken chronically for the prevention of cardiovascular disease (CVD) continues to occur. Poor adherence is a primary barrier to treatment success and affects not only the patient but also the health care system. We aim to explore the impacts of risk attitudes and time preferences on the decisions of patients to begin and comply with aspirin therapy for CVD prevention. Three hundred fifty-seven patients who used low-dose aspirin for CVD prevention under the guidance of their doctors completed the survey. The risk attitudes and time preferences of the patients were elicited using a multiple price list experiment. Logistic regression models were used to examine the predictors of adherence to aspirin use. Risk-seeking behaviours were significantly associated with both nonparticipation (P < .01) and lower compliance (P < .05) in patients. The coefficient for time preference was only significant at the 0.05 level for the decision to initiate aspirin use, which indicated that more impatient patients were less likely to begin with the use of aspirin. Forgetfulness in using aspirin on time and a lack of knowledge (as well as a lack of belief in the use of aspirin) could largely explain the poor adherence to aspirin therapy. The identification of risk seekers and of those individuals who discount the future to a lesser degree may help providers to formulate tailored strategies to their patients, thus effectively enhancing their adherence to treatment.

Gender gap in self‐employment: The role of risk attitudes

AbstractThis paper examines the link between the willingness to take risk and the gender gap in self‐employment in the transition economy, where for decades entrepreneurship was considered a crime. Using rich data on risk preferences and entrepreneurial activities, we show that male–female risk tolerance differential is the main determinant of the gender gap in self‐employment in Ukraine. The decomposition results indicate that up to 38% of the gap can be attributed to this factor. Robustness tests support the validity of the baseline findings by suggesting that the results are not confounded by such factors as being unemployed before starting a current job, having a self‐employed household member, or living in a relatively wealthy household before transitioning to self‐employment.

Private Firmss Cash Holding Decisions: The Role of Risk Attitudes

In this paper, we examine cash holding determinants using a large dataset of private firms from 15 European countries. Since, in this type of firms, there is an incomplete separation of the finances of key stakeholders from the finances of the firm, we complement the precautionary motive traditionally considered in the corporate finance literature, which typically takes the form of the hedging motive advocated by Acharya et al. (2007), with an attitudinal precautionary motive that takes into account stakeholders’ risk attitudes and, in particular, their prudence and temperance. Under this motive, the firm-level demand for savings and cash-holding decisions is driven by determinants similar to those that drive the demand for savings by households and their holdings of cash. Our empirical results suggest that, in our sample of private firms, this novel precautionary motive naturally complements or even supplants the traditional one, which is hard to reconcile with evidence on a negative relation between cash holdings and both investment and leverage.

About the Authors

About the Authors

From the Editor…

In our first article, Samuel D. Bond, Kurt A. Carlson, and Ralph L. Keeney address the important stage of decision problem formulation in “Improving the Generation of Decision Objectives.” Next, Charles M. Harvey and Lars Peter Østerdal develop “Cardinal Scales for Health Evaluation.” We then move to consideration of risk taking and risk perception. In our third article, Alen Nosić and Martin Weber report their experimental study on “How Riskily Do I Invest? The Role of Risk Attitudes, Risk Perceptions, and Overconfidence.” In the next article, Michel Denuit and Louis Eeckhoudt provide results on “Bivariate Stochastic Dominance and Substitute Risk-(In)dependent Utilities.” In our final article, Bjørn Sandvik and Lars Thorlund-Petersen derive results on “Sensitivity Analysis of Risk Tolerance.” At the end of this article are some recent journal accomplishments, including the coverage in the Social Sciences Citation Index.

Health, education and time preference

Education has been shown to be the most important correlate of health. However, the mechanism through which education influences health has been largely unexplained. Grossman argued that education improves health production efficiency. In contrast, Fuchs argued that the association between health and education is not primarily causal but reflects unobserved causes of both outcomes. Instead of education causing better health, some 'third' variables may be related to both education and health. The 'third' variable most frequently mentioned is time preference. The aim of this paper is to investigate the role of time preference in the relationship between education and health. The role of risk attitude is also investigated. The paper exploits a unique data set of households that incorporated stated preference questions eliciting individuals' time preferences. The results show that the effect of education reduces but does not disappear when controlling for individuals' time preferences.

Responding to crises and disasters: the role of risk attitudes and risk perceptions

Discussions are taking place both in the United States and in Europe about how governments should respond to both disasters and crises, and how citizens' non-desirable behaviour might be managed with respect to such disasters. Here we examine the role that risk attitudes and risk perceptions play in decision making behaviour of individuals in times of crises and disasters and how knowledge about individual behaviour and its drivers may be helpful when developing policy. The proposed framework complements the existing literature, thereby further enriching the knowledge of crises and disaster management.

How Riskily Do I Invest? The Role of Risk Attitudes, Risk Perceptions, and Overconfidence

Our study analyzes the determinants of investors' risk-taking behavior. We find that investors' risk-taking behavior is affected by their subjective risk attitude in the financial domain and by the risk and return of an investment alternative. Our results also suggest that, consistent with previous findings in the literature, the objective, or historical, return and volatility of a stock are worse predictors of risk-taking behavior than subjective risk and return measures. Moreover, we illustrate that overconfidence, or more precisely, miscalibration, has an impact on risk behavior as predicted by theoretical models. However, our results regarding the effect of various determinants on risk-taking behavior heavily depend on the content domain in which the respective determinant is elicited. We interpret this as an indication for an extended content domain specificity. In particular, with regard to the Markets of Financial Instruments Directive, we believe practitioners could improve on their investment advising process by incorporating some of the determinants that, by our argument, influence investment behavior.

Cross-sectional earnings risk and occupational sorting: The role of risk attitudes

This paper investigates to what extent individuals' risk preferences are correlated with the cross-sectional earnings risk of their occupation. We exploit data from the German Socio-Economic Panel, which contains a direct survey question about willingness to take risks that has been shown to be a behaviorally valid measure of risk aversion. As a measure of earnings risk, we use the cross-sectional variation in earnings that is left unexplained by human capital variables in Mincerian wage regressions. Our evidence shows that individuals with low willingness to take risks are more likely to work in occupations with low earnings risk. This pattern is found regardless of the level of occupation categories, region, gender and labor market experience.

Règles de responsabilité civile et prévention des risques environnementaux

Cet article étudie la prévention des risques environnementaux à travers les mécanismes du droit de la responsabilité civile. Dans un premier temps, une typologie des dommages environnementaux est dressée, puis les principaux régimes de responsabilité environnementale en vigueur en Europe et aux États-Unis sont présentés. Dans une seconde étape qui constitue le cœur du papier, seront présentés les principaux résultats économiques concernant les règles de responsabilité sans faute et pour faute comme mécanismes de régulation d’un risque. L’efficacité relative de ces deux règles sera d’abord analysée dans un contexte de solvabilité du responsable, d’information parfaite et de neutralité au risque de tous les acteurs. Enfin l’efficacité des deux règles sera analysée en relâchant ces hypothèses une à une.

Cross-Sectional Earnings Risk and Occupational Sorting: The Role of Risk Attitudes

Cross-Sectional Earnings Risk and Occupational Sorting: The Role of Risk Attitudes

Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, and Channel Members' Market Structures

By integrating elements of both marketing and finance, we show how risk influences channel contract behavior. We model risk behavior as the interaction between risk attitude and risk perception (IRAP). An analysis of the joint channel decisions of 208 producers, wholesalers, and processors provides three clear results. First, risk attitudes significantly vary across different levels of channel members. Second, IRAP - in combination with the channel member's market structure on the buying and selling side - is a strong predictor of contract behavior. Third, increases in channel power strengthen the impact of IRAP on channel contract behavior.

Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, And Channel Members' Market Structures

By integrating elements of both marketing and finance, we show how risk influences channel contract behavior. We model risk behavior as the interaction between risk attitude and risk perception (IRAP). An analysis of the joint channel decisions of 208 producers, wholesalers, and processors provides three results. First, risk attitudes significantly vary across different levels of channel members. Second, IRAP – in combination with the channel member's market structure on the buying and selling side – is a strong predictor of contract behavior. Third, increases in channel power strengthen the impact of IRAP on channel contract behavior.

Judging Risk and Return of Financial Assets

This article examines the relationship between judgments of risk and judgments of expected return of financial assets. It suggests that for unfamiliar assets, both risk and return judgments are derived from global preference toward the asset, whereas for familiar assets, these judgments tend to be derived from the ecological values of the asset's risk and expected return—their values in the financial markets. In addition, the article examines the role of causal schemas and the role of risk attitudes in mediating the relationships between judgments of risk and return of familiar and unfamiliar assets. Conceptual and practical questions concerning the nature, the meaning, and the assessment of risk and expected return are discussed.