Human behavior toward risky decision making: a review of experimental studies on risk preferences
48 Pages Posted: 2 Aug 2021
Date Written: February 25, 2021
Since business activities are generally subject to uncertainties, dealing with risk is essential. Principals are generally assumed to maximize their expected value and therefore act in a risk-neutral manner by diversifying their portfolio. Agents, however, often deviate from maximizing their expected value due to personality traits and contextual factors. Therefore, this review focuses on experimental research that investigates how personality traits and contextual factors affect human behavior toward risky decision making. The review first defines risk-taking behavior and distinguishes between different types of risk preferences. Further, the review discusses common methods to measure different types of risk preferences in experimental studies. By proposing a model of risk preferences, this review considers how personality-related traits and contextual factors affect risk preferences. As such, this review suggests that individual risky decisions vary from risky decisions made for others and from risky decisions in competitive environments.
Keywords: risk taking, risk aversion, decision making, investments, experiments
JEL Classification: C90, D81, G41
Suggested Citation: Suggested Citation