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Determinants of risk-taking: Behavioral and economic views

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Abstract

The concept of risk-taking is examined from various perspectives: economic, decision theoretic, and psychological. Multiple factors are discussed as complicating the extraction of any presumed risk-taking propensity from a person's real-world behavior.Problem structuring, beliefs, andvalues (defined here as riskless as opposed to risky utility) may of course underlie differences in risk behavior. In addition,context andprocess factors can induce variance in risk-bearing. Also,portfolio effects (including cross-sectional, multiattribute, and longitudinal) may greatly complicate the measurement of risk-taking propensity. Lastly, the presence of incompletemarkets (via which risks can be partially diversified and traded) may further mask the link between intrinsic and observed risk-taking. This article examines each of these measurement obstacles and sources of variance.

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  1. Graduate School of Business, University of Chicago, 1101 East 58th Street, 60637, Chicago, IL

    Paul J. H. Schoemaker

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This paper has benefited from presentations at the University of Chicago's Center for Decision Research, the Managerial Economics workshop at the Harvard Business School, and the Annual Judgment and Decision Making Conference in Chicago. Lynd Bacon, Baruch Fischhoff, Robert Gertner, Robin Hogarth, Paul Kleindorfer, Howard Kunreuther, George Loewenstein, Richard Meyer, Ehud Ronn, J. Edward Russo, Peter Salovey and Elke Weber are especially acknowledged for their helpful comments. None bears responsibility for errors or omissions. This research was supported in part from NSF grant SES-8319065.

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Schoemaker, P.J.H. Determinants of risk-taking: Behavioral and economic views. J Risk Uncertainty 6, 49–73 (1993). https://doi.org/10.1007/BF01065350

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