Risk attitude is a crucial factor in decision making, and it plays a significant role in determining how individuals perceive and respond to risk.
People with a risk-averse attitude tend to avoid uncertainty and stick to familiar options, whereas those with a risk-seeking attitude are more likely to take bold action and explore new possibilities.
Research suggests that risk attitude is influenced by personality traits, such as conscientiousness and extraversion, which can affect an individual's willingness to take risks.
A person's risk attitude can also be shaped by their past experiences, including successes and failures, which can influence their confidence in making decisions.
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Factors Affecting Risk Attitude
Family plays a significant role in shaping an individual's risk attitude, with research suggesting that higher income levels are associated with a stronger risk appetite. Family size and education also influence risk attitudes, with larger families and more educated members being more risk averse.
The income level of a family can impact their risk attitude, with high-income households being more risk seeking and middle-income households being more risk averse. A U-shaped structure has been observed, where high- and low-income households are risk seeking, while middle-income households are risk averse.
Marriage and having children can also affect an individual's risk attitude, with married people and parents being more risk averse. Widows, in particular, have been found to be more risk averse than unmarried individuals.
The family environment and education can also influence an individual's risk attitude, with parental education being an important factor in shaping children's risk attitudes. Social mobility is also intergenerational, meaning that the risk attitude of parents can be passed down to their children.
Changes in the socio-economic environment can also impact an individual's risk attitude, with unstable economic environments leading to increased risk aversion. The risk attitude of others can also influence an individual's behavior, with people being more likely to take risks when surrounded by others who are risk seeking.
Ultimately, an individual's risk attitude is influenced by a complex array of factors, including family, education, and socio-economic environment. By understanding these factors, individuals can better manage their risk attitudes and make more informed financial decisions.
Individual Factors
Individual factors play a significant role in shaping our risk attitude. Research suggests that men have stronger financial risk-taking abilities than women and are more inclined to take risks (27).
Age is another crucial factor, with older adults exhibiting risk aversion and preferring safer investments (28). However, this risk aversion is attenuated in the presence of a partner.
Our occupation can also influence our risk attitude, with freelancers being more willing to take financial risks and exhibit a higher risk appetite (30). On the other hand, people lacking cognitive ability are more likely to become risk averse (3).
Our education level and financial literacy also impact our risk attitude, with higher education levels and financial literacy leading to a more risk-taking behavior (26). In contrast, individuals with lower cognitive ability are more likely to become risk averse.
Personality traits, such as sensation seeking and impulsivity, also play a significant role in shaping our risk attitude. For example, the Arnett Inventory of Sensation Seeking (AISS) and the Eysenck Personality Questionnaire (EPQ) are measures that can help assess an individual's risk-taking propensity (Arnett, 1994; Eysenck & Eysenck, 1975).
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Here are some measures of personality traits related to risk:
By understanding these individual factors, we can gain a better insight into our own risk attitude and make more informed decisions about our financial investments.
Measuring Risk Attitude
Risk attitude is typically categorized into three types: risk preference, risk neutrality, and risk aversion. In the study, risk attitude indicators were constructed according to the different options of respondents' questions about investment risk attitudes in the questionnaire.
Risk preference, risk neutrality, and risk aversion are assigned scores of 1, 2, and 3 respectively. The mean of risk attitude in the sample is 1.514, indicating that the risk attitude of most residents in China tends to be neutral as a whole.
The study used a comprehensive index of risk attitude, which was created by combining the scores of the risk attitude indicators. This index provides a clear and concise way to measure an individual's risk attitude.
Measures of Ambiguity
Measuring ambiguity attitude is a crucial aspect of understanding risk attitude. The Ambiguity-Probability Tradeoff Task, developed by Lauriola and Levin (2001), is a well-known measure of ambiguity attitude.
Ambiguity tolerance is another important aspect to consider. Research by Budner (1962) and MacDonald (1970) has shed light on the concept, but more research is needed to fully understand its implications.
The Ambiguity Tolerance measure can be broken down into the following categories:
These measures can help researchers and practitioners better understand how individuals react to ambiguous situations and make informed decisions.
Models and Variables
Measuring Risk Attitude involves understanding the relationship between a person's risk attitude and their consumption behavior. The research model used in this study takes into account the total consumption, which is defined as TC, and the explanatory variable, risk attitude, defined as Risk.
The model is represented by the equation TC=α0+α1×Risk+α3×Z+εi, where α0 is the constant term, α1 is the coefficient of risk attitude, and Z represents the control variables. These control variables include personal characteristics such as gender, age, education level, marital status, and health status.
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Personal characteristics are just one aspect of the control variables, the other being family characteristics. These include the number of houses, total family assets, and family income. The control variables are collectively called variable Z.
The total household consumption is subdivided into three categories: subsistence consumption (SC), development consumption (DC), and enjoyment consumption (EC). This is represented by equations SC=β0+β1×Risk+β3×Z+εi, DC=γ0+γ1×Risk+γ3×Z+εi, and EC=δ0+δ1×Risk+δ3×Z+εi.
Risk attitude is categorized into three types: risk preference, risk neutrality, and risk aversion. Respondents who choose options 1 and 2 are regarded as risk preference, while those who choose option 3 are considered risk neutral. Respondents who choose options 4 and 5 are categorized as risk averse.
Here are the risk attitude indicators and their corresponding values:
The control variables used in the model are categorized into two types: personal characteristics and family characteristics. The personal characteristics include gender, age, education level, marital status, health status, political identity, and business background.
Descriptive Statistics
In this study, the risk attitude of most residents in China tends to be neutral as a whole, with a mean of 1.514.
The majority of respondents were mostly secondary educated, with a mean education level of 3.430. This suggests that education level plays a significant role in shaping risk attitudes.
The average age of the respondents is 55, with the oldest being 117. This indicates that the sample is comprised of individuals from a wide range of age groups.
Most household heads in the sample are predominantly male, with a mean of 0.793 for gender. This is a notable finding, as it suggests that men and women may have different risk attitudes.
The majority of respondents are married, with a mean marital status of 0.850. This is likely due to the cultural and social norms in China.
Most respondents are healthy, with a mean health status of 0.476. This is a positive finding, as it suggests that the sample is generally free from major health issues.
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The majority of respondents are not members of the Communist Party of China, with a mean of 0.126 for political identity. This is a notable finding, as it suggests that political affiliation may not play a significant role in shaping risk attitudes.
Most families own their own homes, with an average of 1.221 homes owned by a family. This is a common finding in many countries, where homeownership is a key aspect of economic security.
Frequently Asked Questions
What is an attitudinal risk?
An attitudinal risk refers to a risk that is influenced by an individual's or organization's chosen state of mind, which can either mitigate or exacerbate the risk's potential impact. This type of risk is subjective and can vary depending on one's attitude towards the uncertainty.
What is the difference between risk attitude and risk appetite?
Risk appetite refers to an individual's or group's natural tendency to take risks, while risk attitude is their chosen response to a specific situation, influenced by their perception of the risk involved. In essence, risk appetite is about inclination, while risk attitude is about action.
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