Quite likely humans show equivalent attitudes to risk

Is there a common “risk preference” that is independent of country, culture, profession or aspirations of making a loss or gain? Are survey questions better in accessing global risk and uncertainty attitudes than incentivized measures? What professions are more risk averse, risk seeking or are correlated with high uncertainty?

What is risk and uncertainty? Risk is when the outcome of an event has known probabilities but the process of receiving the outcome causes some anxiety or concern. Possibility of risk leads rational persons to make investment. When the probability of the outcome is unknown or ambiguous, then uncertainty arises. Uncertainty bred the Insurance market.

In a first of its kind study, Vieider, Ferdinand M. and six other researchers in a working paper entitled: Common Components of Risk and Uncertainty Attitudes across Contexts and Domains: Evidence from 30 Countries, sought for answers to the above questions. Using incentivized measures and survey questions, they looked for a correlation between risks and uncertainties in contexts like finance, sports, driving etc and evaluated these contexts against the possibilities of gains and losses.

The study compared binary lotteries or prospects against survey questions and sought for correlations between both techniques in contexts such as sports, driving, finance, health, occupational, social and general risks, evaluating both the gains and losses domains. It also elicited responses from 2939 subjects from 30 different countries based on gender, study major and other macroeconomic factors like GDP per capita and the gini coefficient, a measure of inequality in a country.

A typical lottery task was:

In the present experiment, you will be asked to choose repeatedly between a fixed amount of money and a lottery. The lottery will always give you a chance to win one of two amounts of money. Figure 1 shows a typical choice task. You are asked repeatedly to choose between playing the lottery and obtaining a sure amount of money. For each row, you are asked to indicate whether you would prefer to play the lottery or to obtain the sure amount of money by ticking the preferred option.

A sample risk survey question runs thus:

How do you see yourself? Are you generally a person who is fully willing to take risks or do you try to avoid taking risks? Please tick a box on the scale below, where 0 means “risk averse” and 10 means “fully prepared to take risks”:

A brief of the results obtained from the study.

1. Does a correlation or association exist between the two different techniques above i.e the incentivized lottery and the survey question?

A correlation does exist that cuts across individuals and countries when considering risk and uncertainty attitudes, but the strength of this association is somewhat variable and could be affected by cultural factors within countries.

2. When it comes to risk premium, does a relation exist, in absolute values?

Risk premium, in this case, is defined as the expected value of a prospect or lottery minus the sure amount of money. Most persons in Western countries (except the UK) were considered to be risk averse while people in developing countries were found to be typically risk seeking. Countries considered very risk seeking were Nigeria and Nicaragua and to a lesser degree, Ethiopia, Vietnam and Peru. It was found that individuals who are willing to take risks are less willing to take an insurance policy.

3. Does a relation exist between risky gains and risky losses?

It was decided that persons who are willing to take risks when there is a possibility of gains are highly likely to take risks when there are possibilities of losses. There seems to exist an underlying component of risk attitudes.

4. What do biology, study majors and macroeconomics reveal?

An association was found between gender and risk preferences, with women generally more risk averse than men. As to age, weak and inconsistent effects were discovered.

Where it concerns study majors, persons who study the Arts are generally risk seeking but seem to be risk averse when it comes to financial risks. Mathematics and natural science majors tended to be less or equivalent risk takers compared to economists while students of the Humanities and Social Sciences tend to be reluctant to accept risks.
In the field of sports, persons from rich countries are more willing to take risks. People from countries with low GDP per capita compared to the United States tend to be more willing to accept uncertainty. In general, when it concerns uncertainty attitudes, there is a clear relation between most contexts (or risk areas) and domains (areas of gains or losses).

You can download and read the full study at the research papers in economics site.

Conclusion: The possibility exists that across contexts and domains, a global “risk preference” does exist.