Laboratory-based risky decision making paradigms developed by researchers in behavioral economics (e.g., Kahneman & Tversky, 1979) ask participants to choose between two options with varying expected values (EV). Very few studies have explored the relationships between these expected-value tasks and risk perceptions and intentions in other life domains. Five studies were conducted to explore these relationships.
Study 1 (N = 345) used a survey format to examine the relationship between a hypothetical two-choice EV risky decision making task and perceptions of financial risk climate. Findings suggested that the number of risky choices remained positively correlated with our measures of consumer confidence, even after controlling for income level and self-reported stress.
Study 2 (N = 213) expanded the scope of Study 1 by examining the relationship between risky choices on a two-choice EV task and intentions to engage in risky activities in a variety of behavioral domains. Results suggested that risky choices were positively correlated with risk taking intentions from behavioral domains such as: aggressive and illegal behavior, risky sexual behavior, heavy drinking, risky academic/work behaviors, high risk sports, betting, investing, and recreational risk taking.
Study 3 (N = 138) examined whether the pattern of results found in Studies 1 and 2 might be the result of a change in attitude caused by the current economic recession. No statistically significant differences between the two samples were detected, although the number of risky choices for our sample in 2010 was numerically smaller for both gain and loss framed trials compared to participants from 2006 collected by Lauriola, Levin, and Hart (2007).
Study 4 (N = 144) was conducted to elucidate the nature of the loss aversion findings from Studies 1 and 2 (where the ratio of risky loss to risky gain choices was close to 1:1) and those of Study 3 (where the ratio of risky loss to risky gain choices was close to 2:1). Results suggested that outcome magnitude appeared to be the strongest influence on loss aversion.
Study 5 (N = 116) was a pilot study conducted to determine whether consumer confidence and risk taking could be experimentally manipulated by asking participants to consider hypothetical positive or negative financial events. Results indicated that those in the positive condition reported greater consumer confidence, and also took more risks on a two-choice EV task compared to those in the negative condition. There were no statistically significant group differences in positive or negative affect, income level, optimism, or self-reported stress.
Overall, these results indicate that risk propensity measured by two-choice EV tasks does appear to be related to perceptions of financial risk climate, intentions to engage in risk taking in other behavioral domains, and that it may be possible to experimentally manipulate both risk taking and perception of financial risk climate at a macro-level (e.g., consumer confidence).