Are some cultures greater risk-takers than others?

This study dove in to find out.

Analyzing the data of respondents from Germany, Poland, the US, and China, the study measured respondents’ risk preference for pricing financial options.

These are their findings.

Hypothesis

Studies have shown a correlation between a culture’s position on the individualism-collectivism scale and its risk preference.

Called the Cushion Hypothesis (Weber & Hsee, 1998), the theory suggests that those from collectivist cultures are more likely to take financial risks.

Why?

Due to the perceived support from their collectivist culture and, thus, the reduced negative consequences such a risk might have on the individual.

While this study did arrive at the same conclusion – that the collectivist society of China was less risk-averse than its American counterpart – it did identify a more specific reason for it.

Risk-Averse

The majority of respondents in all four cultures were identified as risk-averse (i.e. they were willing to pay more for options they saw as “less risky”).

When you look at a risk-return conceptualization, it is natural that most people, no matter what culture, would perceive risk this way.

When risk preference was evaluated in the traditional expected-utility framework, Chinese respondents were considerably less risk-averse in pricing than Americans.

But what this study found was that the difference in risk preference may not be due to a cultural attitude toward perceived risk; instead, it appears largely due to the perception of the financial options’ risk itself.

Chinese participants simply did not find the options as risky as their counterparts.

Conclusion

The study states:

“Chinese respondents were closest to risk neutrality in their pricing of the financial options and judged the risk of these options to be the lowest, but were not significantly less perceived-risk averse.

“American and Germans offered the lowest prices and also perceived the risk of the options to be highest, but were not significantly more perceived-risk averse.”

One might practically apply this knowledge to commerce and negotiation when working across these particular cultures, affording both negotiators joint gains.

The study concludes that while cultures do vary on a collectivism-individualism continuum which undoubtedly impacts perceived risk, other cultural factors in risky decision-making – locus of control, differences in achievement motivation, etc. – may also come into play in risk preference.

Further studies into the subject might provide more insight.

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