Domain effects and financial risk attitudes

We investigated whether financial risk preferences are dependent on the financial domain (i.e., the context) in which the risky choice options are presented. Previous studies have demonstrated that risk attitudes change when gambles are framed as gains, losses, or as insurance. Our study explores this directly by offering choices between identical gambles, framed in terms of seven financial domains. Three factors were extracted, explaining 68.6% of the variance: Factor 1 (Positive)—opportunity to win, pension provision, and job salary change; Factor 2 (Positive-Complex)—investments and mortgage buying; Factor 3 (Negative)—possibility of loss and insurance. Inspection of the solution revealed context effects on risk perceptions across the seven scenarios. We also found that the commonly accepted assumption that women are more risk averse cannot be confirmed with the context structure suggested in this research; however, it is acknowledged that in the students’ population the variance across genders might be considerably less. These results suggest that our financial risk attitude measures may be tapping into a stable aspect of “context dependence” of relevance to real-world decision making.

This is the peer reviewed version of the following article: Domain Effects and Financial Risk Attitudes, which has been published in final form at https://onlinelibrary.wiley.com/doi/10.1111/j.1539-6924.2010.01433.x... This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited