Risk Preferences and Misconduct: Evidence from Politicians

34 Pages Posted: 7 Jan 2016

See all articles by Dylan Minor

Dylan Minor

Anderson School of Management (UCLA)

Date Written: December 2015

Abstract

When seeking new leaders, business and government organizations alike often need individuals that are less risk averse, or even risk-seeking, in order to improve performance. However, individuals amenable to increased risk-taking may be more likely to engage in misconduct. To study this issue, we explore US political scandals and the implicated politicians’ portfolio choices. We find that a politician allocating all of her portfolio to risky investments has double the odds of being involved in a political sandal compared to a politician allocating all of her portfolio to safe investments. This suggests that those who are more willing to take risks in their personal finances are also more likely to engage in misconduct. We validate portfolio choice as a measure of risk preferences by correlating actual high-stakes investment choices (average $700,000 US) to conventional laboratory lottery choices (average $51 US) of wealthy investors.

Suggested Citation

Minor, Dylan, Risk Preferences and Misconduct: Evidence from Politicians (December 2015). Harvard Business School Strategy Unit Working Paper No. 16-073. Available at SSRN: https://ssrn.com/abstract=2711279 or http://dx.doi.org/10.2139/ssrn.2711279

Dylan Minor (Contact Author)

Anderson School of Management (UCLA) ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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