Risk taking behaviour Flashcards
in literature, how many decisions are considered risky?
All decison are risky as whenever we encounter a sitatution we are faced with two characteristics: uncertaintiy of decision making and the impact the decision has.
Who proposed the conceptual framework for risk-taking behaviours
Sitkin and pablo (1992) : denotes improtance of risk perceptions that mediate the relationship.
Breifly describe the hisitory of risk taking behaviours.
risk has always played a key role in survival from physical and poor weather conditions to war and diseases. Fundamental principle of probality was established in renaissance period, along eith the lloyd of london which issued policies on risk and payoffs. lacked a sciencifc anaylsis basis. Von bortkiewicz was the first to do this through collecting data on soldiers annual deaths by horse kicks in prussian army.
How has been risk been defined?
economic theory: risk was an outcome that may occur with a certain probability
Fuller (1998) : involvement of unconcious process
mirhsa (2014) : all decisions carry some degree of risk.
what is the defintion of risk propensity?
decision maker’s current tendency to take or avoid frisk and it also caputarues indivudal difference in overall orientation toward risk- taking behavior. (the trait).
what are the advantages of risk propensity?
- significant implication for the theoretical moodel of risk- taking behaviour
- provides insight into the mechanism
- indvidual trait that can change due to experience
what happens to risk taking behaviour as we grow older?
empirial findings suggestt indivudals become more risk-averse .
what has Tso et al, 2022 research shown about what motivates us to engage in risk taking behaviour
- how and whether people take isk depends on : expectations (based on experience), how quickly they learn, how averse they are to losses, general tolerance and how consitent/inconsistent they are with decison making.
according to the literature what does it mean to be a risk taker?
the risk propensity : impulsivity, sensation seeking, nostalgia, boredom and moderate emotional intelligence.
the risk behaviour: general, related to finance, other domains? can be intesified by other circumstances such as drugs/alcohol and social pressures.
what the issue with risk propensity and risk taking behaviour
there is a huge debate about the measure, certain behaviours may have not occured if it was due to the sitatuion, doesnt necessarily mean there is risk taking behaviours usually.
is risk-taking behaviour domain specific?
decision makers demonstrate different levels of risk- taking between different domains, finacial risk-taking is a robust predictor of other types of risk- taking.
compare the difference between decision making under uncertainty vs under risk
uncertainity the decision maker’s behaviour is purely based on his/her attiude towards the unkown where as with the probailities are known.
compare the two major theories for making decisons under risk.
Normative: top-down approach, rational/logic option, Expected utility theory
Descriptive: bottom-up approach, try to identifiy mechansims, prospect theory.
what is the expected utility theory?
this was proposed to resolved the st.petesburg gamble/pardox. It was assumed that indivduals are rational and have well-defined preferences. These cam be quantified into measuurbale values of utility functions. aim is to maximise utility (the measure of happiness, gratification or satification derived from behaviour)
what are the criticism for expected utility theory?
preference reversal: they showed that the decison makers behaviour was not consitent when choices were presented in monetary values
ellsberg paradox : decision makers could be influenced by extra information shifting preferences.
operationlization of utility debate.
not well defined, how people should behave and not real life.
