Income inequality and risk taking: the impact of social comparison information

Theory and Decision - In contrast to the assumptions of standard economic theory, recent experimental evidence shows that the income of peers has a systematic impact on observed degrees of risk...     

Ambiguity and risk taking in organizations

Kunreuther, Meszaros, and Hogarth (1993) argue that insurers are risk averse and ambiguity averse, and that they use cognitive reference points and constraints in making pricing decisions. They further claim that insurer ambiguity may be a factor that has a role in market failure at the industry level. Arguably, ambiguity may be an important aspect of decision behavior. In this article, research on managerial risk taking is reviewed with a focus on the relationship between ambiguity and risk taking. In particular, the effects of the organizational and institutional context are highlighted. It is argued that the political aspects of insurer decision behavior should be considered as well. Implications for further study and understanding of decision making are discussed.     

Social comparison and risky choices

Theories (and experiments) on decision making under risk typically ignore (and exclude) a social context. We explore whether this omission is detrimental. To do so we experimentally investigate the simplest possible situation with both social comparison and risk: participants choose between two lotteries while a referent faces a fixed payoff. Participants are more risk averse when they can earn at most as much as their referent (loss situation) than when they are ensured they will earn at least as much as their referent (gain situation). Prospect theory with a social reference point would predict the exact opposite behavior. These results show that straightforward extensions of existing theories to allow for social comparison do not provide accurate predictions.     

The effect of fast and slow decisions on risk taking

We experimentally compare fast and slow decisions in a series of experiments on financial risk taking in three countries involving over 1700 subjects. To manipulate fast and slow decisions, subjects were randomly allocated to responding within 7 seconds (time pressure) or waiting for at least 7 or 20 seconds (time delay) before responding. To control for different effects of time pressure and time delay on measurement noise, we estimate separate parameters for noise and risk preferences within a random utility framework. We find that time pressure increases risk aversion for gains and risk taking for losses compared to time delay, implying that time pressure increases the reflection effect of Prospect Theory. The results for gains are weaker and less robust than the results for losses. We find no significant difference between time pressure and time delay for loss aversion (tested in only one of the experiments). Time delay also leads to less measurement noise than time pressure and unconstrained decisions, and appears to be an effective way of decreasing noise in experiments.     

Dynamics in risk taking with a low-probability hazard

The experiment reported in this paper identifies the effects of experience on revealed attitudes toward risk. Subjects in the experiment encountered an uncertain risk of experiencing a negative income shock over multiple periods and were able to purchase insurance at the start of each period. Subjects engaged in greater risk taking, insuring less frequently, when faced with the same risk over multiple periods. Subjects weighted experienced outcomes proportionately, in a manner consistent with rational Bayesian inference and contrary to the theory that individuals exhibit recency bias. On the other hand, subjects assigned a greater weight to outcomes that directly impacted their earnings compared to observed outcomes that had no effect on income. Unexplained autocorrelation across subjects’ choices suggests that inertia also plays an important role in repeated risk settings. I explore the relevance of these findings to public policy aimed at influencing market outcomes in the presence of infrequent environmental hazards.     

Prosocial risk taking and interpersonal regret in children: An individual differences study

The relations between prosocial risk taking (taking a risk to benefit another person; PSRT) and interpersonal regret (regret that one's choices have caused a poor outcome for another person) were examined in 192 children aged 7–9. PSRT was measured by children's choices within a gambling task in which one choice guaranteed participants a good prize whereas the other involved risking this prize to help a peer also win a good prize. Interpersonal regret was assessed within the same task by examining children's change in emotion when they learned they would have won a better prize for a peer had they chosen differently. Performance on this task was also examined in relation to sympathy and resource sharing. Findings indicated that the operationalizations of PSRT and interpersonal regret were meaningful. Children who took a prosocial risk were more generous in a resource sharing task. In some circumstances, children who took a prosocial risk were also more likely to experience interpersonal regret than those who did not take a prosocial risk, indicating that experiencing interpersonal regret may be related to individual differences in prosociality. However, experiencing interpersonal regret did not have a direct effect on subsequent prosocial behavior, when measured by resource sharing. We consider findings in relation to a possible distinction between outcome and process regret and the generalizability of the behavioral consequences of regret.     

Changes in multiplicative background risk and risk-taking behavior

This article analyzes the conditions under which any change in a multiplicative background risk induces a more cautious behavior. We give necessary and sufficient conditions under which any change in the multiplicative background risk with respect to the Nth-degree stochastic dominance raises local risk aversion. Surprisingly, decreasing relative risk aversion of any order up to N in the sense of Pratt (Econometrica 32:122–136, 1964) coupled with decreasing relative risk aversion in the sense of Ross (Econometrica 49:631–638, 1981) are sufficient to guarantee an increase in local risk aversion after any deterioration of the multiplicative background risk thanks to the Nth-degree stochastic dominance. We link our results concerning second-order stochastic dominance with the concept of multiplicative risk vulnerability.     

A comparison of models for strategic planning,risk analysis and risk management

Summary Risks, uncertainties in firms and their environment are increasingly dealt with strategic planning, risk analysis and risk management. The present state of strategic planning enables us to consider the greatest part of internal and environmental risks mainly qualitatively - due to the fact that the majority of planning models used are of a deterministic type.The application of CAPM in strategic planning could take risks into account explicitly and maximize the expected value of the firms' common stock. Linked to a corporate simulation model or a DSS it could generate a series of values for the expected rate of return, its standard deviations as well as other output variables important for the management. The difficulties of the use of CAPM are numerous but an attempt to optimize the value of the firm would be a big step in developing new powerful instruments for evaluating the economic consequences of alternative strategies. The problems of CAPM lead to the considerations of the application of stochastic programming in strategic planning. For special cases solution methods can be developed and applied. The implementation of the Decision Support System in strategic planning could help to find the best decision in an interactive way - as suggested in this paper for the case of strategic marketing planning. DSS renders the consideration of other factors relevant to strategic decisions possible; businesses need not be reduced to portfolio terms. The limitations of CAPM, stochastic programming and the difficulties of the implementations of DSS for strategic planning could be partially avoided through the concept of Risk Management. On this concept strategic planning represents only one instrument of Risk Management and is a powerful tool of risk identification. In this paper the other instruments have been shortly demonstrated for the cases of product reliability and risks in relation with foreign countries. The development of new instruments for special cases (e.g., siting problems, specific strategic decisions, etc.), the considerations of risk behavior in individual, group and inter-organizational or even international decision making are now the main topics in the urgent task of research in risk management.     

Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses

In the loss domain, both practical and ethical considerations rule out the systematic use of an incentive-compatible procedure involving real losses. The experimental study presented here aims at investigating whether some easier-to-implement procedure could be adequately used. For that purpose, the subjects’ degree of risk aversion is compared across three payment conditions: a real-losses condition based on a random-lottery (incentive-compatible) system, which serves as a benchmark, and two challengers, namely a “losses-from-an-initial-endowment” procedure and a hypothetical-losses condition. As a by-product, our experimental design also allows us to investigate the impact of monetary incentives in the gain domain. The main result is twofold: no significant difference arises between the three payment conditions in the loss domain, while real and hypothetical choices significantly differ in the gain domain. Our results suggest that the use of monetary incentives may be more crucial in the gain domain than in the loss domain.     

The Impact of Developing Social Perspective‐taking Skills on Emotionality in Middle and Late Childhood

A sample of 209 children was followed longitudinally to examine the impact of growing perspective‐taking skills on positive and negative emotionality in middle and late childhood. Perspective‐taking skills were assessed through interviews. Teachers rated children's emotional reactivity and capacity to regain a neutral state following emotional arousal. Analyses of contemporaneous data revealed that more developed perspective‐taking skills were associated with moderate levels of emotional reactivity. In addition, in children with high emotional reactivity, good perspective‐taking skills were associated with good capacity to regain a neutral affective state following emotional arousal. Longitudinal analyses revealed that children who made gains in perspective‐taking skills over a two‐year‐period became more moderate in negative emotional reactivity and improved their ability to down‐regulate strong positive emotions. The overall findings support the notion that children use perspective‐taking skills as a tool for optimal regulation of emotional responses.     

Individual behavior under risk and under uncertainty: An experimental study

These experiments are concerned with individual behavior under risk and under uncertainty. By exploiting the isolation effect the experiments were able to offer to 134 subjects the possibility of actually gaining or losing an important sum of money.The experimental data show that under risk as well as under complete ignorance the subjects' attitudes towards prospects of gains and towards prospects of losses are totally unrelated.The data also show that when facing prospects of gains, the subjects generally take the exact probabilities of the events into account, whereas, when facing prospects of losses many of then have only recourse to coarser categories of plausibility, or even no longer use their information at all.     

Comparing behavior under risk and under ambiguity in a lifecycle experiment

Experiments on intertemporal consumption typically show that people have difficulties in optimally solving such problems. Previous studies have focused on contexts in which agents are faced with risky future incomes and have to plan over long horizons. We present an experiment comparing decision making under certainty, risk, and ambiguity, over a shorter lifecycle. Results show that behavior in the ambiguity treatment is markedly different than in the risk condition and it is characterized by a significant pattern of under-consumption.     

Incomplete risk attitudes and random choice behavior: an elicitation mechanism

Theory and Decision - In the presence of incomplete risk attitudes, choices between noncomparable risky prospects are random. A random choice model advanced by Karni (Incomplete preferences and...     

Preference towards control in risk taking: Control,no control,or randomize?

This paper experimentally investigates preference towards different methods of control in risk taking. Participants are asked to choose between different ways for choosing which numbers to bet on for a gamble. They can choose the numbers themselves (control), let the experimenter choose (no control), or randomize. Classical economic theories predict indifference among the three methods. I found that participants exhibit strict preference for control, preference for no control, and preference for randomization. These preferences are robust as participants are willing to pay a small amount of money to implement their preferred method. Most participants believe that the winning probability under different methods is the same. This result contributes to the literature by clarifying that for most participants who exhibit preference for control, their preference is not due to illusion of control, but by source preference. Participants invest less in the risky gamble when they are not offered their preferred method.     

Social workers' personal death attitudes, experiences, and advance directive communication behavior

This research surveyed 29 social workers to examine their personal death attitudes and experiences in relation to their advance directives communication practice behavior. The study measured death attitudes on 5 dimensions: fear, avoidance, neutral, approach, or escape acceptance of death. Participants' personal experiences with terminal illness and death were also assessed. Advance directive communication practices were operationalized as 7 phases: initiation of the topic, disclosure of information, identification of a surrogate decision-maker, discussion of treatment options, elicitation of patient values, interaction with family members, and collaboration with other health care professionals. Findings suggest that social workers' advance directive communication behavior differs by practitioners' death attitudes and experiences. Implications for social work education and professional development are discussed.     

Predicted risk perception and risk-taking behavior: The case of impaired driving

Research suggests an association between risk perception and risk-taking behavior in a variety of contexts. There is empirical evidence that perceived risk is generally biased and that perception of risk influences behavior. Perception of risk can be endogenous. It is therefore more appropriate to instrument risk perception. This article studies the perception of the risks associated with impaired driving and the relation between predicted risk perception and driving behavior. We survey a sample of license-holders, half of whom are drivers with a past conviction for impaired driving, the other half or control group without such conviction. Predicted perceptual biases are shown to influence actual driving behavior.

Social behavior practices for child protection and well-being among low-income urban households in Bangladesh

The main objective of this study was to explore the status of social behavior practices for child protection and well-being among low-income urban households in Bangladesh. This study used a survey method, and data were collected through a face-to-face structured interview from 378 low-income household heads from 12 wards (Konabari and Kashimpur) of Zone 5 of the Gazipur City Corporation. Results found that the current status of the presence of child protection services is very low (in many cases, this number is zero except children having birth registered). A significant number (55%) of them were married between 15 and 19 years. The study found a low level of access on the components of social behaviors where around 50% to 60% caregivers stated 4 benefits of key behaviors, necessity of hand washing after defecation and before and after taking a meal, the age of boys and girls to get married off, and know the effect and consequences of child marriage. The chi-squared tests confirmed extremely high significance in almost all of the components. Findings will be an important guideline for the policymakers, child service practitioners, and human rights workers.