Social Influence Pressures and the Risk Perceptions of Aspiring Financial Market Professionals

Abstract

Much of the press has blamed the incentive schemes and associated performance pressures at financial firms for professionals’ tendency to engage in excessive risk-taking behavior. To better understand the behavior of financial market professionals, we analyze in this study the risk perceptions of aspiring financial market professionals before they enter the financial market. More importantly, we examine whether these risk perceptions are influenced by two common social influence pressures: 1) obedience and 2) conformity. First, using survey data, we provide preliminary evidence that undergraduate business students who plan on majoring in accounting and finance have higher aspirations to become financial market professionals and are more inclined to take risk than their peers. We next conduct a field experiment involving 131 students, with the vast majority of them majoring in finance and/or accounting, and we ask them to choose between a risky and safe grading option in an examination setting. Observing their change of choices under social influence pressures, we find that obedience pressure significantly influences their risk perceptions, but conformity pressure is effective only when the peer information is delivered by an authority figure. Overall, our findings imply that the risk perceptions of aspiring financial market professionals contribute to their risk-taking behavior, but that these risk perceptions are not invariable and can be maneuvered by an authority figure.

Keywords: social influence pressures; risk perceptions; financial market professionals; risk-taking

JEL Classification: D81, J44