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New paper in JPSP: Identifying robust correlates of risk preference

Posted on Monday, Mar 09 2020

In the behavioral sciences it has long been a goal to identify variables that are systematically associated with people's risk preferences. Yet, evidence concerning many "candidate correlates" (e.g., wealth, age, sex, education) has been mixed, because previous studies tended to focus on single variables (i.e., not taking into account many competing predictors) and to implement few operationalizations of risk preference. In our paper recently published in JPSP (see here for the PDF), we tackled this issue in a novel way: using specification curve analysis (SCA), we assembled all possible model specifications given the variables of our dataset, which resulted in over 1 million models (incl. simulation analyses). Thanks to our powerful sciCORE at the University of Basel, we could efficiently estimate these models using traditional OLS and Bayesian methods.

A key advantage of SCA is its possibility to visualize results of extensive modeling analyses transparently. The main findings indicated that a person's sex and age have robust and consistent associations with people's risk preferences, whereas other candidate correlates showed less consistent or no associations. The results also demonstrate the important role of construct operationalization when assessing people’s risk preferences: self-report measures picked up various associations with the proposed correlates, but behavioral measures largely failed to do so. In sum, we hope that our paper illustrates how exhaustive modeling analyses can provide conclusive answers to important theoretical issues in the behavioral sciences.

Frey, R., Richter, D., Schupp, J., Hertwig, R., & Mata, R. (2020). Identifying robust correlates of risk preference: A systematic approach using specification curve analysis. Journal of Personality and Social Psychology. doi:10.1037/pspp0000287 | PDF

Norming the assessment of risk preference in the financial advisory process

Posted on Monday, Dec 02 2019

Last week I was invited at the DIN (i.e., the German Institute for Standardization in Berlin) to contribute to the development of a new norm concerning the financial advisory process of bank customers. Specifically, the Markets in Financial Instruments Directive (MIFID) requires financial companies to collect and document a series of information concerning their clients – including their risk tolerance. Yet, these regulations do not specify how risk profiling ought to be carried out in practice. For this reason, an expert panel composed of different stakeholders (e.g., financial advisors, representatives of banks) currently works on establishing respective norms to standardize this process. I am glad that our scientific efforts can contribute to this discussion, and it was good to see that this panel has an open ear for the empirical insights we have recently published. I am excited to see how the norm will eventually be carved out!

No effect of birth order on adult risk taking

Posted on Monday, Jun 03 2019

Research in personality psychology has explored many potential sources for the emergence of individual differences. One of them is birth order: according to Sulloway’s childhood niche hypothesis, later-borns develop a more pronounced propensity to take risks than firstborns, because "risk taking is a useful strategy in the quest to find an unoccupied niche". That is, in their competition for parents' limited resources, risk taking might be instrumental for later-borns to attract attention. But do such early experiences shape personality lastingly, potentially leading to stable adult differences in risk taking? We analyzed three datasets to address this question. First, we employed an exhaustive modeling approach (i.e., specification curve analysis) to analyze a large panel dataset with self-report data. Second, we analyzed a large set of self-report and behavioral measures from the Basel-Berlin Risk Study. Third, we analyzed historical data on explorers and revolutionaries. The analyses of our three-pronged approach speak with one voice and suggest a clear conclusion: there exists no effect of birther order on adult risk taking. For the full details, please see here.

How well do people's subjective risk perceptions track objective risks?

Posted on Friday, Mar 15 2019

What drives people's risk perceptions in dynamic risk-taking environments? And how well do subjective risk perceptions in fact track the environments' objective risks? In a recently published paper, Oliver Schürmann, Tim Pleskac, and I have addressed these questions using the Balloon Analogue Risk Task (BART; for an online demo, click here). Specifically, using this task we aimed to map people's subjective perceptions of risks, as well as to examine how risk perceptions potentially change with growing task experience. We observed two main results: First, participants' subjective beliefs that a balloon will explode on a given stage of inflation (i.e., the conditional probability of an explosion when pumping once more) dramatically differed from the task's actual stochastic structure (i.e., shown by the dashed line in the figure below) – thus providing an explanation why people typically appear risk-averse in this task. Second, whether the first balloon exploded early (green lines) or late (red lines) had a substantial impact on participants' risk perceptions. Although these differences vanished by the end of the task, participants' risk-taking behaviors across the 30 trials still differed substantially. In sum, these findings highlight the important role of early experiences in the formation of subjective risk perceptions, and have direct implications for valid task designs in future developments of risk-taking measures. Read more.

Schürmann, O., Frey, R., & Pleskac, T. J. (2019). Mapping risk perceptions in dynamic risk-taking environments. Journal of Behavioral Decision Making, 32, 94-105. doi:10.1002/bdm.2098

Research stay at Princeton University

Posted on Monday, Oct 22 2018

At the beginning of October I moved to the USA for a research stay at the Behavioral Science for Policy Lab at Princeton University. During the next few months, I will work together with Elke Weber to address questions regarding the generalizability of the construct risk preference (and potentially other personality dimensions) to sustainability- and energy-related decision making, as well as regarding the basic cognitive processes driving risk perceptions in these domains. Princeton has a thriving academic life, with numerous interesting talks at the various departments. Last but not least, the campus itself is phenomenal, including many beautiful libraries and quiet spaces to get a lot of work done!

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