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Beyond money: Risk preferences across both economic and non-economic contexts predict financial decisions
Crystal Reeck1, O'Dhaniel A Mullette-Gillman2, R Edward McLaurin2
1Department of Marketing, Fox School of Business, Temple University, Philadelphia, Pennsylvania, United States of America.
Plos One
|December 16, 2022
Summary
A general risk attitude, not just financial, better predicts financial risk-taking behavior. Understanding this domain-general preference improves financial decision-making and aids.
Area of Science:
- Behavioral economics
- Decision science
- Psychology
Background:
- Risk attitudes are crucial in diverse decision-making contexts like finance and healthcare.
- The interplay between domain-general and domain-specific risk attitudes remains underexplored.
- Existing research suggests a general risk attitude exists across various domains.
Purpose of the Study:
- To investigate the relative predictive power of domain-general versus domain-specific risk attitudes on financial risk-taking behavior.
- To clarify the relationship between broad risk preferences and financial decisions.
- To inform theories of decision-making and the development of decision support tools.
Main Methods:
- Utilized the Domain-Specific Risk-Taking Scale (DOSPERT) to assess risk attitudes across multiple domains.
- Employed confirmatory factor analysis to identify a domain-general risk attitude.
- Applied structural equation modeling to analyze the predictive relationship between risk attitudes and financial risk premiums.
Main Results:
- Confirmatory factor analysis confirmed the existence of a domain-general risk attitude influencing responses across various domains.
- Structural equation modeling demonstrated that the domain-general risk attitude was a stronger predictor of financial risk premiums than domain-specific financial risk attitudes.
- Financial risk-taking behavior was better explained by considering risk attitudes from both economic and non-economic domains.
Conclusions:
- A domain-general risk attitude significantly influences financial risk-taking.
- Assessing risk preferences across diverse domains provides deeper insights into underlying general risk preferences.
- Integrating domain-general risk assessment enhances the prediction of financial decision-making outcomes.
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