Risk Attitudes Of Subjects Research Articles

Too much or less? The effect of financial literacy on resident fraud victimization

Fraud not only damages the wealth and reputation of individuals, but also poses a threat to social security. Although the relationship between financial literacy and resident fraud victimization has been discussed in recent studies, previous research has ignored the ways in which residents make psychological decisions when faced with fraud, and findings have not been agreed upon. The purpose of this study is whether and how financial literacy influences fraud victimization in the risky decision-making process. Under dual process theories, this study constructs regression models using the survey sample (N = 16352) from the China Household Finance Survey (CHFS). Our findings show that there is a U-shaped relationship between financial literacy and fraud victimization, and that this relationship is heterogeneous across gender. Further analysis found a moderating effect of Subjective Risk Attitudes (SRA) on this relationship, with risk preferences causing the U-shaped relationship between financial literacy and resident fraud victimization to gradually shift to a monotonic positive relationship. In addition, we consider the problem of endogeneity, which has been neglected in previous studies, and construct a new instrumental variable to address endogeneity. Our study provides some new insights into the behavioral analysis of residents' economic decisions.

Financial decision-making power and risk taking

We find that financial decision-making power per se is significant in explaining individuals’ objective risk-taking behavior and subjective risk attitude. More importantly, we show that this decision power attenuates the correlation between subjective risk attitude and objective risk taking. These results are significant in understanding the important role of decision-making power in individual risk-taking behavior.

Financial Decision-Making Power and Risk Taking

We find that financial decision-making power per se is significant in explaining individuals’ objective risk-taking behavior and subjective risk attitude. More importantly, we show that this decision power attenuates the correlation between subjective risk attitude and objective risk taking. These results are significant in understanding the important role of decision-making power in individual risk-taking behavior.

Integrated Weighted Distance Measure for Single-Valued Neutrosophic Linguistic Sets and Its Application in Supplier Selection

The purpose of this study is to propose an integrated distance-based methodology for multiple attribute group decision making (MAGDM) within single-valued neutrosophic linguistic (SVNL) environments. A new SVNL distance measure, namely the SVNL integrated weighted distance (SVNLIWD) measure, is first developed for achieving the aim. The remarkable feature of the SVNLIWD is that it integrates both merits of ordered weighting and average weighting into aggregating SVNL distances; therefore, it can account for both the importance of aggregated deviations as well as ordered positions. Thus, it can highlight the decision makers’ subjective risk attitudes and combine the importance of objective decision information. Some distinctive characteristics and special forms of the presented distance framework are then specifically studied. Moreover, a MAGDM model on the basis of the proposed SVNLIWD form is formulated. Finally, an illustrative numerical case regarding selecting low-carbon supplier is used to test the performance of the designed method.

A new hybrid multi-criteria decision-making approach for developing integrated energy systems in industrial parks

The integrated energy system (IES) has been regarded as a promising energy supply solution due to its high efficiency and low emissions. However, various IES composition schemes exhibit different performance, and decision-makers or stakeholders have experienced difficulty in selecting the most appropriate alternative. This paper aims to develop a multi-criteria decision-making method for a selection problem involving integrated energy system composition schemes in Zhejiang Province, China. As existing research has neglected the interaction between criteria and ignored the subjective risk attitude, this paper proposes a new method based on modified fuzzy integral and prospect theory. First, the criteria’s weights are calculated by the Mahalanobis-Taguchi Gram-Schmidt method; the λ fuzzy measures of these criteria are then calculated based on the φs transformation function and weights. This approach not only considers both subjective and objective information, but also eliminates overlapping information between criteria. Second, based on the grey correlation degree and the prospect theory, a prospect decision matrix is obtained that considers decision-makers’ subjective risk attitudes. Finally, the alternatives are scored using a fuzzy integral. The results reveal that a complimentary solar and wind based system is the preferred scheme in project construction. Further, comparison and sensitivity analyses verify the proposed model’s validity and feasibility, and some suggestions are given to further develop the IES.

The path selection model of emergency logistics based on cumulative prospect theory

In recent years, sudden natural disasters occur frequently. Typical emergencies have the characteristics of great uncertainty, large-scale casualty risk, time pressure and urgency, which have a series of serious and sustained impacts on people's production and life. Therefore, after the emergencies, emergency rescue is particularly important for disaster-stricken areas, and the decision-making of emergency logistics is an important part of it. At present, the research on emergency logistics in China focuses on the shortest distribution time, multi-objective decision-making, dynamic path planning, and operational research. It is believed that people are completely rational in making decisions, ignoring people's subjective factors and risk attitudes. From the perspective of decision-makers' risk attitude, this paper studies people's decision-making bias under the condition of incomplete rationality. Based on previous studies, this paper determines the value coefficient and weight coefficient, and according to the characteristics of emergency logistics, time is selected as the reference point., and A path selection model based on cumulative prospect theory is established. According to the risk attitude, the decision maker is divided into risk preference type and risk avoidance type. Based on the established model, an example is simulated, and the parameters in the model are simulated, and the impact of risk attitude and parameter changes on the final decision-making is analyzed. The simulation results show that the cumulative prospect theory is applicable to the study of emergency logistics decision-making mechanism, and the parameter setting will also have an important impact on the path prospect.

Young adults’ subjective and objective risk attitude in financial decision making

PurposeThe purpose of this paper is to derive the determinants of young adults’ subjective and objective risk attitude in theoretical and real-world financial decisions. Furthermore, a comparison of the factors that influence young adults’ and older adults’ risk attitude is provided.Design/methodology/approachThe paper relies on an experimental setting and a cross-sectional field study using data of the German central bank’s (Deutsche Bundesbank) PHF-Survey.FindingsYoung adults’ objective risk aversion is not constant but increases with stake sizes. Furthermore, young adults’ subjective risk attitude is a better predictor for their objective risk attitude than a set of commonly employed socio-demographics and economics like age or income. Moreover, young adults’ subjective risk attitude works as a mediator for the influence of their investable financial wealth on their objective risk attitude. Although young adults’ subjective risk attitude shows a gender effect, the influence of young adults’ gender on their objective risk attitude decreases with higher stake sizes. Compared to older adults, young adults generally show a similar degree of subjective risk aversion. However, due to stronger financial restrictions, young adults show a higher degree of objective risk aversion.Originality/valueAlthough individuals’ financial outcomes depend on the financial behavior established in young adulthood, there is no study that simultaneously analyzes the determinants of young adults’ subjective and objective risk attitude in real-world financial decisions with a focus on young adults as a separate age group. The paper closes this gap in literature and additionally provides a comparison of the subsamples of young adults and older adults. The analysis in this paper reveals that young adults’ lower engagement in financial markets is primarily driven by their tight budget and not by a fundamental different subjective risk attitude.

Risk decision-making based on Mahalanobis-Taguchi system and grey cumulative prospect theory for enterprise information investment

For the decision-making problem of enterprise information technology investment risk, based on existing research shortage, this paper proposes a risk decision-making method based on cloud model, Mahalanobis-Taguchi system and grey cumulative prospect theory with the consideration of the fuzziness o f evaluating language and subjective risk attitude of decision makers. The method results in the ``quantitative to qualitative'' transformation of risk evaluation in information technology investment by cloud model and constructs interval numbers decision matrices according to the ``3En'' principle. An m-dimensional interval numbers decision vector is regarded as super cuboids in m-dimensional attributes space, using two-level orthogonal experiment to arrange points uniformly and dispersedly. The numbers of points are assured by testing numbers of two-level orthogonal arrays and these points compose of distribution points set to stand for decision-making project. In order to eliminate the influence of correlation among indices, Mahalanobis distance is used to calculate the distance from each investment program to ideal programs. Since the decision-maker's attitude can affect the decision result when the investment decision-making in practice, the paper defines the grey correlation coefficient and the prospect value function based on Mahalanobis distance, and calculates the comprehensive prospect value of each program and finds the optimal one. Finally, an example application proves that the method is a feasible and effective method of decision-making. Compared with other methods, the result is much more realistic and superior.

Trust in others: does it affect investment decisions?

In recent years, we have witnessed a fundamental change in the way laypeople approach economic issues—from a complete reliance on the financial system as the major source of investment wisdom to self-reliance and self-investments. The current paper examines how personality traits affect novice investors’ decisions regarding the scope and amount of risk they take when making investments. The results indicate that general subjective risk attitudes and social trust influence investment patterns, but not in the same manner. While risk and trust influence the individual’s willingness to take financial risks and invest in risky instruments, trust also affects investment diversification. In contrast to former studies, in this paper we define the term “trust” using two separate measurements—trust in the world versus self-trust. We made this differentiation by applying Schwartz’s value model. We found that subjects who had faith in others took more financial risks, tending to concentrate their funds in these instruments. The opposite pattern was revealed in the behavior of self-trusting investors. These subjects not only invested in less risky instruments, they also divided their capital among several assets. The results suggest that psychological traits influence investment patterns in different manners, which requires a closer examination.

Integration of multiple determinants in the neuronal computation of economic values.

Economic goods may vary on multiple dimensions (determinants). A central conjecture in decision neuroscience is that choices between goods are made by comparing subjective values computed through the integration of all relevant determinants. Previous work identified three groups of neurons in the orbitofrontal cortex (OFC) of monkeys engaged in economic choices: (1) offer value cells, which encode the value of individual offers; (2) chosen value cells, which encode the value of the chosen good; and (3) chosen juice cells, which encode the identity of the chosen good. In principle, these populations could be sufficient to generate a decision. Critically, previous work did not assess whether offer value cells (the putative input to the decision) indeed encode subjective values as opposed to physical properties of the goods, and/or whether offer value cells integrate multiple determinants. To address these issues, we recorded from the OFC while monkeys chose between risky outcomes. Confirming previous observations, three populations of neurons encoded the value of individual offers, the value of the chosen option, and the value-independent choice outcome. The activity of both offer value cells and chosen value cells encoded values defined by the integration of juice quantity and probability. Furthermore, both populations reflected the subjective risk attitude of the animals. We also found additional groups of neurons encoding the risk associated with a particular option, the risky nature of the chosen option, and whether the trial outcome was positive or negative. These results provide substantial support for the conjecture described above and for the involvement of OFC in good-based decisions.

Stability of probability effects in utility elicitation

The present study investigates the impact of probability levels on the response mode bias in utility elicitation and its stability across a wide range of conditions. Experiments are performed with subjects from two different cultures, Austria and Pakistan, and a variety of methods to measure risk attitudes of subjects on a cardinal scale are used. Results indicate robust influences of probability levels on both the Certainty Equivalent method and the Probability Equivalent method of utility elicitation. Both methods are affected by probability changes in the opposite direction, creating the characteristic “tailwhip” pattern observed in previous research. Our study shows that this effect remains stable across different cultural backgrounds, measurement methods, and problem parameters, and is thus not an artefact but a reproducible phenomenon.

State Dependent Valuation: The Effect of Deprivation on Risk Preferences

The internal state of an organism affects its choices. Previous studies in various non-human animals have demonstrated a complex, and in some cases non-monotonic, interaction between internal state and risk preferences. Our aim was to examine the systematic effects of deprivation on human decision-making across various reward types. Using both a non-parametric approach and a classical economic analysis, we asked whether the risk attitudes of human subjects towards money, food and water rewards would change as a function of their internal metabolic state. Our findings replicate some previous work suggesting that, on average, humans become more risk tolerant in their monetary decisions, as they get hungry. However, our specific approach allowed us to make two novel observations about the complex interaction between internal state and risk preferences. First, we found that the change in risk attitude induced by food deprivation is a general phenomenon, affecting attitudes towards both monetary and consumable rewards. But much more importantly, our data indicate that rather than each subject becoming more risk tolerant as previously hypothesized based on averaging across subjects, we found that as a population of human subjects becomes food deprived the heterogeneity of their risk attitudes collapses towards a fixed point. Thus subjects who show high-risk aversion while satiated shift towards moderate risk aversion when deprived but subjects who are risk tolerant become more risk averse. These findings demonstrate a more complicated interaction between internal state and risk preferences and raise some interesting implications for both day-to-day decisions and financial market structures.

Rolling the Dice: The Importance of Mesolimbic Dopamine Signaling in Risky Decision Making

To maximize resources, organisms must learn to predict the outcome of various options and choose the most valuable alternative. Behavioral choices such as ‘playing it safe' vs ‘taking a risk' engage a complex circuit that includes the mesolimbic dopamine (DA) system. A seminal study by Schultz et al (1997) showed that mesolimbic DA neurons function as a ‘teaching signal' and encode cues that predict rewards and errors in those predictions. DA release in the nucleus accumbens (NAc) reflects this learning signal, and also processes information about reward value as animals are actively making decisions. For example, DA release in the NAc core is higher for cues that predict more valuable rewards, and signals the most valuable available option (Day et al, 2010). Organisms rarely encounter situations in which simple stimulus-outcome associations are in effect, and thus must rely on multiple factors to make appropriate decisions including the representations of internal needs and external states, possible courses of action, and the consequences of those actions (Rangel et al, 2008). Risky decision making involves this type of complex evaluation and is of particular interest because it is implicated in several psychiatric disorders, including gambling and drug addiction. Risk-taking behavior has been modeled in rats using a task where subjects are allowed to choose between larger more uncertain rewards or smaller certain rewards. Importantly, in this task, it is not more advantageous to make one response over the other, and as such it is possible to evaluate intrinsic subjective value and individual risk attitudes. We have found that DA release in the NAc encodes the subjective value of future outcomes and, when given a free choice, may bias animals toward a risk or safe preference (Sugam et al, 2012). However, the mesolimbic DA-NAc system does not function in isolation. Disruptions of the basolateral amygdala (BLA), prefrontal cortex (PFC) and NAc circuitry have resulted in differential effects on risk-taking. The BLA-NAc circuit appears critical for encoding reward probabilities, thus biasing animals to more valuable options when risks are lower. The PFC appears critical for tracking reward omissions and is important for shifting behavior as rewards become more uncertain and less valuable (St Onge et al, 2012). These findings suggest that each discrete region in this larger circuit has different roles in mediating appropriate decision making, and signaling from these structures likely modulate the value signaling of the mesolimbic DA system in risky decision making. Recent advances in optogenetic techniques allow for the probing of individual portions of the reward circuit in mediating risk-taking behavior. For example, using a genetic line of rats, researchers were able to selectively activate DA fibers arising from the ventral tegmental area and showed that this manipulation is sufficient to drive motivated behaviors (Witten et al, 2011). Thus, future studies can apply optogenetic tools to selectively manipulate DA signaling while rats are deciding to engage in risk-taking behavior, and examine the causal relationship between rapid DA signaling in each discrete region of the mesolimbic circuit and risky behaviors. Determining the mechanisms that underlie appropriate risk-taking behavior will not only enhance our understanding of the role of this circuitry in normal decision making, but will also provide insight into what goes wrong during maladaptive risk taking. This approach may help identify optimal targets for therapeutic treatments of maladaptive decision making that occur, for example, in drug or gambling addiction or in eating disorders.

Measuring the Subjective Risk Attitude of Decision-Makers: Are there Differences between Groups of Methods and of Persons?

Measuring the Subjective Risk Attitude of Decision-Makers: Are there Differences between Groups of Methods and of Persons?

Inferring beliefs as subjectively imprecise probabilities

We propose a method for estimating subjective beliefs, viewed as a subjective probability distribution. The key insight is to characterize beliefs as a parameter to be estimated from observed choices in a well-defined experimental task and to estimate that parameter as a random coefficient. The experimental task consists of a series of standard lottery choices in which the subject is assumed to use conventional risk attitudes to select one lottery or the other and then a series of betting choices in which the subject is presented with a range of bookies offering odds on the outcome of some event that the subject has a belief over. Knowledge of the risk attitudes of subjects conditions the inferences about subjective beliefs. Maximum simulated likelihood methods are used to estimate a structural model in which subjects employ subjective beliefs to make bets. We present evidence that some subjective probabilities are indeed best characterized as probability distributions with non-zero variance.

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.

Closed-Form Optimal Investment when Present Values and Costs are Jump-Diffusions

We study optimal irreversible investment in a project with infinite horizon when its present value V and its cost I are jump-diffusions. Our analysis accomodates for firm's subjective risk attitude and for her subjective discount rate if the net present value of entering the project cannot be spanned. The properly discounted V is employed as the numeraire. This choice of numeraire transforms the investment problem into a perpetual American put problem, empowering explicit formulae for the investment option value and for the optimal investment policy. We show that natural levels of risk, risk attitude, and discount rate can lead to a non-standard double continuation region: The firm waits to invest if V over I is too low as well as if V over I is too high. The result does not depend on the presence of jumps.

Financial Decision-Making: Are Women Really More Risk Averse?

40 males, 33 females gain-gambling (gain domain) loss-gambling (loss domain) a Contextual frames. b Abstract gambling frames. studies, the application of experimental methods provided stronger control of the economic environment in which decisions were made. We elicited data which call into question the prevalence of stereotypic risk attitudes in financial decision-making. First, we find that the comparative risk propensity of male and female subjects is strongly dependent on the financial decision setting. Second, and more important, we observe no gender differences in risk propensity when subjects face contextual decisions. Since in practice financial decisions are always contextual, our results suggest that the above gender stereotype may not reflect true male and female attitudes toward financial risks. I. Gender-Specific Risk Behavior: An Experimental Design Our experiment was designed to examine gender-specific risk propensity in decisions relevant for investors and managers. Table 1 gives an overview of the experimental design. In the main treatment, we implemented risky choices in the form of investment and insurance decisions. Choice behavior in this treatment (henceforth called the context treatment) directly measures the risk behavior of male and female subjects in contextual financial decisions. We also ran a control treatment in which the same risky choices were presented as abstract gambling decisions. This control treatment (henceforth called the abstract treatment) allows us to validate the risk behavior induced by our experimental procedure in the light of the above-mentioned gambling evidence. In the context treatment, subjects were confronted with risky choices in two different decision contexts. Subjects first had to complete a series of investment decisions. They were then presented with a series of identical choices, this time, however, framed as insur1 Wealth effects from income differences outside the laboratory may still affect risk behavior in our experiment. They are controlled for in our model. 2 Experimental instructions are available in German from the authors or in English from our web page: »www.wif.ethz.ch/publikationen.htm... . ance decisions. Each investment and insurance decision incorporated a choice between a risky lottery and a certain payoff. With the series of choices implemented in the two frames we elicited our subjects’ certainty equivalents for the same four risky lotteries (L1, L2, L3, L4) in both contexts. We implemented two frames in the context treatment in order to measure the risk propensity of subjects toward both perceived gains and perceived losses. In both frames, all possible payoffs for each decision were positive. In the investment frame these payoffs were also presented as gains, while in the insurance frame the same payoffs were presented as losses relative to an initial endowment. Therefore, elicited certainty equivalents in the investment frame measure subjects’ risk propensities in the gain domain, while certainty equivalents in the insurance frame measure risk propensity in the loss domain. If, in contextual financial decisions, female subjects are generally more risk-averse than men, our results should display, ceteris paribus, lower female certainty equivalents in both the investment and insurance frames. 3 The four lotteries (L1, L2, L3, and L4) each had two possible outcomes. Payoffs in Swiss francs (1 SFr A $0.60) and their probabilities were (30 SFr, /6; 10 SFr, /6) , (30 SFr, /2; 10 SFr, /2) , (30 SFr, /6; 10 SFr, /6) , and (50 SFr, /2; 20 SFr, /2) , respectively. 4 Experimental evidence suggests that individual risk propensity will vary systematically between the gain and loss domain ( Daniel Kahneman and Amos Tversky, 1979). 383 VOL. 89 NO. 2 GENDER AND ECONOMIC TRANSACTIONS / 3y16 my68 Mp 383 Friday Dec 10 08:20 AM LP–AER my68 FIGURE 1. DIFFERENCES IN MEAN CERTAINTY EQUIVALENTS (CE) BETWEEN MALE AND FEMALE SUBJECTS, BY FRAME Note: Certainty equivalents ( and male – female differences) are measured in Swiss francs. In the abstract treatment we confronted a different group of subjects with exactly the same risky decisions as those in the main treatment. However, as mentioned before, all choices in this control treatment were framed as abstract gambling decisions. Again, two frames were implemented. In the gaingambling and loss-gambling frames we measured the risk attitudes of subjects toward gambles in the gain and loss domain, respectively. Subjects in both treatments were told in advance that one of their choices would determine their experimental earnings. Further, all subjects completed a post-experimental questionnaire which yielded information on each subject’s disposable income. This information is necessary to exclude wealth effects due to income differences outside the laboratory as an explanation of gender-specific choice behavior.

Risk Attitudes in First-Price Auction Experiments: A Bayesian Analysis

Non-cooperative bidding theory for sealed-bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents. Received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects. Those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to risk or are all risk neutral. This paper constructs an explicit Bayesian prior distribution for the risk attitudes of experimental subjects and reconsiders the experimental results. It finds that observed bidding behavior is still inconsistent with the Nash predictions when explicit prior weights are attached to alternative assumptions about subject risk attitudes. Thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes. Non-cooperative bidding theory for sealed-bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents. Archetypical of this result is the Nash Equilibrium prediction for First Price auctions for an object that is valued by agents in an independent and private manner. Received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects. Those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to riskor are all risk neutral. In this paper we construct an explicit prior distrlbution for the risk attitudes of experimental subjects and reconsider the experimental results. We find that observed bidding behavior is indeed consistent with the Nash predictions when explicit prior weights are attached to alternative assumptions about subject risk aversion. However, when one allows for risk loving subjects as well, observed behavior is inconsistent with Nash predictions. Thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes. In section I we consider a specific Nash Equilibrium (NE) bidding model due to Cox, Roberson and Smith (1982) and Cox, Smith and Walker (1988) that clearly illustrates the risk-sensitivity of the theoretical predictions. In section II we provide independent evidence of the risk attitudes of experimental subjects in a test for risk attitudes developed by Harrison (1986a). This evidence allows us to construct an explicit prior probability density function over the coefficient of (constant relative) risk attitudes employed in the specific bidding model of section I. In section III we reconsider the evidence from the First Price (FP) experiments reported in Cox, Roberson and Smith (1982) and Cox, Smith and Walker (1983a, 1983b). I. A Specific Bidding Model Cox, Roberson and Smith (1982), hereafter CRS, present a model based on a power function utility specification for agent i: Ui(y) y= (1) Received for publication August 31, 1987. Revision accepted for publication December 18, 1989. * University of South Carolina. I am grateful to two anonymous referees for helpful comments, although they are not responsible for my conclusions.

A re-examination of Harrison's experimental test for risk aversion

This paper examines several aspects of Harrison's (1986) test for the risk attitudes of experimental subjects. We identify specific refinements to Harrison's test that must be adopted in order to establish correctly a subject's risk posture.