To punish first and reward second: Values determine how reward and punishment affect risk-taking behavior

The current study investigated whether manipulating participants’ pre-exposure to reward and punishment affects the extent to which sensation seeking and values predict risk-taking behavior. Participants (n = 195) were randomly allocated to one of two conditions, defined by the order at which they were rewarded or punished for risk-taking behavior. Risk-taking behavior was measured in both conditions using the Balloon Analogue Risk Test, however this was set-up such that participants in group 1 were rewarded for risk-taking behavior prior to being punished, whereas participants in group 2 were punished for risk-taking behavior prior to being rewarded. Participants also completed questionnaires designed to measure sensation seeking and the values of ‘stimulation’ (the need for novelty and excitement) and ‘hedonism’ (the need for sensuous pleasure). It was found that stimulation predicted risk taking behavior in the ‘reward-then-punishment’ condition, whereas hedonism predicted risk-taking behavior in the ‘punishment-then-reward’ condition. Sensation-seeking was found to be an indirect predictor of risk-taking behavior in both conditions. It is tentatively concluded that the extent to which an individual’s risk-taking behavior is guided by their values (hedonism, stimulation) largely depends on their prior exposure to the order of contingent reward and punishment

Delegated Portfolio Management and Risk Taking Behavior

Standard models of moral hazard predict a negative relationship between risk and incentives; however empirical studies on mutual funds present mixed results. In this paper, we propose a behavioral principal-agent model in the context of professional managers, focusing on active and passive investment strategies. Using this general framework, we evaluate how incentives affect the risk taking behavior of managers, using the standard moral hazard model as a special case; and solve the previous contradiction. Empirical evidence, based on a comprehensive world sample of 4584 mutual funds, gives support to our theoretical model.

Risk-Taking Behavior with Limited Liability and Risk Aversion

The authors of this paper consider the problem of a risk-averse firm with limited liability. The firm has to select the size of its investment in a risky project. We show that the optimal exposure to risk of the limited liability firm is always larger than under full liability. Moreover, there exists a positive lower bound on the value of the firm below which the firm will "bet for resurrection," i.e. it will invest the largest positive amount in the risky project. We also consider the standard portfolio problem with more than one risky asset. We show that limited liability may induce the firm to specialize in no Mean-Variance efficient assets. This paper was presented at the Financial Institutions Center's May 1996 conference on "

Experiencing discrimination increases risk taking.

Prior research has revealed racial disparities in health outcomes and health-compromising behaviors, such as smoking and drug abuse. It has been suggested that discrimination contributes to such disparities, but the mechanisms through which this might occur are not well understood. In the research reported here, we examined whether the experience of discrimination affects acute physiological stress responses and increases risk-taking behavior. Black and White participants each received rejecting feedback from partners who were either of their own race (in-group rejection) or of a different race (out-group rejection, which could be interpreted as discrimination). Physiological (cardiovascular and neuroendocrine) changes, cognition (memory and attentional bias), affect, and risk-taking behavior were assessed. Significant participant race × partner race interactions were observed. Cross-race rejection, compared with same-race rejection, was associated with lower levels of cortisol, increased cardiac output, decreased vascular resistance, greater anger, increased attentional bias, and more risk-taking behavior. These data suggest that perceived discrimination is associated with distinct profiles of physiological reactivity, affect, cognitive processing, and risk taking, implicating direct and indirect pathways to health disparities

Dopamine and Risk Preferences in Different Domains

Individuals differ significantly in their willingness to take risks. Such differences may stem, at least in part, from individual biological (genetic) differences. We explore how risk-taking behavior varies with different versions of the dopamine receptor D4 gene (DRD4), which has been implicated in previous studies of risk taking. We investigate risk taking in three contexts: economic risk taking as proxied by a financial gamble, self-reported general risk taking, and self-reported behavior in risk-related activities. Our participants are serious tournament bridge players with substantial experience in risk taking. Presumably, this sample is much less varied in its environment than a random sample of the population, making genetic-related differences easier to detect. A prior study (Dreber et al. 2010) looked at risk taking by these individuals in their bridge decisions. We examine their risk decisions in other contexts. We find evidence that individuals with a 7-repeat allele (7R+) of the DRD4 genetic polymorphism take significantly more economic risk in an investment game than individuals without this allele (7R-). Interestingly, this positive relationship is driven by the men in our study, while the women show a negative but non-significant result. Even though the number of 7R+ women in our sample is low, our results may indicate a gender difference in how the 7R+ genotype affects behavior, a possibility that merits further study. Considering other risk measures, we find no difference between 7R+ and 7R- individuals in general risk taking or any of the risk-related activities. Overall, our results indicate that the dopamine system plays an important role in explaining individual differences in economic risk taking in men, but not necessarily in other activities involving risk.

Risk-Taking Behavior and Its Impact on Treatment, Vaccination and Diagnosing

We present results from two recent mathematical biology studies that address the effect of risk-taking behavior on epidemic models. We show that when risk-taking prevails over riskavoidance, it is possible to show a detrimental and counterintuitive effect from increasing vaccination and treatment rates over certain critical time intervals. In addition, when risk-taking has a cumulative effect within the population, a lower transmission rate from diagnosed infected individuals may prevent the intended effect of vaccination

An Empirical Study on Risk Taking in Tournaments

Individuals faced by a tournament can oftentimes not only choose their effort level, but also the risk level of their strategy. There are some theoretical contributions on risk taking in tournaments, which mainly point out disadvantages with respect to exerted effort. Empirical evidence is rare. In this paper we analyze risk taking behavior of professional soccer coaches. We find that risk taking concerning the kind of observed substitutions is, indeed, relevant. However, risk taking does not pay off.

“Relationship Connectivity” Counts:Lifetime Relationships, Family Structure, andRisk-Taking in Adulthood

The impacts of interpersonal relationships (in childhood and in early adulthood) on risk-taking behavior of young adults were the focus of this research. Data from the 2012 New Family Structures Survey (using a subset of 2,917 young adults aged 18-39), disaggregated by whether the respondents grew up in conventional or unconventional households, were augmented with eight interviews with health and counseling professionals. Healthy early family relationships and current romantic relationships offered the best protections against adult risk-taking behavior, irrespective of family household structure. On the other hand, a healthy parent-child relationship in adulthood and bullying victimization in childhood were both linked to increased risk-taking in later years, but only if raised in unconventional families. These findings contributed to the empirical literature on the consequences of healthy relationships, with natal families, peers, and partners, for positive life decisions and partly illuminated Agnew’s Strain and Aker’s Social Control Theories. Exploring a fuller range of unconventional family structures, a broader variety of risk-taking behaviors, and whether said behaviors turn into addictions will better highlight the long-term consequences of relationship connectivity for adult risk-taking

Organizing effects of testosterone and economic behavior: not just risk taking

Recent literature emphasizes the role that testosterone, as well as markers indicating early exposure to T and its organizing effect on the brain (such as the ratio of second to fourth finger,D2:D4), have on performance in financial markets. These results may suggest that the main effect of T, either circulating or in fetal exposure, on economic behavior occurs through the increased willingness to take risks. However, these findings indicate that traders with a low digit ratio are not only more profitable, but more able to survive in the long run, thus the effect might consist of more than just lower risk aversion. In addition, recent literature suggests a positive correlation between abstract reasoning ability and higher willingness to take risks. To test the two hypotheses of testosterone on performance in financial activities (effect on risk attitude versus a complex effect involving risk attitude and reasoning ability), we gather data on the three variables in a sample of 188 ethnically homogeneous college students (Caucasians). We measure a D2:D4 digit ratio, abstract reasoning ability with the Raven Progressive Matrices task, and risk attitude with choice among lotteries. Low digit ratio in men is associated with higher risk taking and higher scores in abstract reasoning ability when a combined measure of risk aversion over different tasks is used. This explains both the higher performance and higher survival rate observed in traders, as well as the observed correlation between abstract reasoning ability and risk taking. We also analyze how much of the total effect of digit ratio on risk attitude is direct, and how much is mediated. Mediation analysis shows that a substantial part of the effect of T on attitude to risk is mediated by abstract reasoning ability

Capital Regulation and Credit Risk Taking : Empirical Evidence from Banks in Emerging Market Economies

The primary purpose of this article is to investigate the relationship between bank capital and credit risk taking in emerging market economies. We also investigate the influence of several regulatory, institutional and legal features on the relationship between risk and capital. We apply a simultaneous equations framework following Shrieves and Dahl (1992) and Jacques and Nigro (1997). Our results corroborate the existing findings for US and other industrial economies, putting forward the impact of capital regulation on banks’ behavior. We also show empirical evidence on the role of the regulatory, institutional and legal environment in driving bank capitalization and credit risk taking behavior in emerging market economies.bank capital and risk taking, bank regulation, emerging market economies, regulatory, institutional and legal environment