Psychology And Social Behavior

Difference in attitude toward risk. Decision maker A tends to avoid risk, while decision maker B tends to take a risk for the opportunity (Risk taker) of a large payoff. (Can be check by plotting the values).

Decision making is an important area of study in psychology, because it ultimately affects behavior, as is demonstrated in studies discussing gambling and risky decisions. The research on factors affecting decision making is crucial, not just for the overall advancement of psychology, but because it has strong application value. It can be used for helping certain individuals make better decisions in important or stressful situations, and to decrease risky behavior overall.

Behavioral finance theories, which are based on the psychology, attempt to understand how the psychological variables (heuristics, prospect, and herding) and perceived risk behaviour (Risk Perception, Risk attitude and Risk Propensity) influence individual

Most of these theories are not mutually exclusive, and there is no reason to expect that only one cause predominates. All of these theories merely push back the question--why do people differ in their attitudes toward risk or their abilities to run a business or in the constraints

(2002) argue “Although these constructs clearly overlap with risk taking, none capture fully its broad, multidimensional nature, and currently there exists no universally accepted measure for the assessment of risk taking” (Lejuez et al., 2002, p. 75). Additionally, they point out the disadvantages of relying only on self-report measures, and validity issues with “existing behavioral risk tasks consistently have been shown to demonstrate poor convergent validity with self-report measures of risk-related constructs” (2002, p. 75). Therefore, Lejuez et al. (2002) developed the Balloon Analogue Risk Task (BART), which they tested against self-report measures in a population sample of 86 participants between the ages 18-25, with an equal division of gender. They included the phrase ‘are you a risk taker?’ to gain access to “individuals at the upper end of the risk-taking continuum” (Lejuez et al., 2002, p. 76). The participants IQ’s were measured to examine the influence of IQ on risk behavior on the BART. The researchers used the 40 items ‘sensation seeking scale’ (Zuckerman et al., 1978), and the 34-item ‘Barratt Impulsiveness Scale’ version 1.0 (Barratt, 1985; Patton, Stanford & Barratt, 1995). They measured different aspects of riskiness construct separately then they combined them into one measure using the ‘Behavioral Constraint Super-factor of the Multidimensional Personality

Lejuez et al. (2002). was evaluating the test that measures risk-taking, the Balloon Analogue risk task (BART). They also looked at it in relation to self-measure reporting and real-world behaviours. Risk-taking involves behaviour that involves some danger or harm, where a reward may or may not be the result. What they found was that riskiness on the BART was correlated significantly with scores on the self-report measure of risk-taking. There was some limitation to the study such as

In the case study, Fastsave is a retail chain store company that was doing quite well, and had more than enough financial resources to make investments. In other words, they are able and they have the capacity to take risks with no significant danger of losses. The real risk here was whether it would be worth it for them in terms of time and effort. The attitude to risk is also based on individuals who personalities vary. In the case study, individuals who are more reserve tend to be more cautious as they are realistic while the others who are more risky or outgoing tend to be more straightforward as they maintained an optimist

As individuals and as a society we are constantly making decisions. Economics teach us that we have to make choices because resources are limited. For every choice we make there is something we must give up, that which we gave up is known as opportunity cost. In general individuals act to make themselves as well off as possible, (Wheelan, pg.6). Robert Kiyosaki an American businessman says that, for him making himself as well of as possible means thinking rationally as opposed to emotionally. Our emotions can sometimes sway us from making intelligent decisions, often out of fear.

Then when you are uncertain you take a risk a lot of the time. But even though reasoning, and decision-making are separate processes they are very similar. The reason behind this is that to make a good decision you have to have reasoning behind why you picked that certain answer. For example if you had a problem, which would decide your housing situation, you have to see what were the best choices. So you see the pros and cons then with those you make your decision. Decisions are made after reasoning is given on why it’s a good or bad

The experiment took place in students’ respective discussion sections and all students are assigned to both blocked and interleaved study. Once in the discussion sections, students were instructed to go to the experiment website (http://www.cogfog.com/EG/KBOriginalW17/) and follow the instructions on the website. Students were prompted to enter their identification number (PID) to ensure the students get credit for completing the experiment, and then they were directed to demographic questionnaire where students were asked to identify their gender (65.38% females, 33.33% males, 1.282% abstained), age (M=19.95), educational level (28.21% high school graduates, 57.69% currently in some college but without degree, 8.974% associates degree, and 5.128% bachelors degree), and fluency in English (92.31% fluent, 7.692% not fluent).

This model, developed by Johanson and Vahlne (Johanson J., 1976) is evaluating the perception of the risk and how experiential knowledge and market uncertainty can influence it.

risk-takers are more likely to accept jobs with a high degree of risk, the compensating wage

To operationalize risk aversion, I use the questions from GSOEP’s 2009 survey directly asking individuals about their risk-taking preferences; this is the only survey year containing all risk-related variables asked within the project, including an umbrella question for personal willingness to take risks, as well as specialized questions about risk-taking in financial matters, leisure and sports, occupation, health and trusting other people. I combine the answers to these questions into one risk aversion index.

In experimental inserting, Johnson et al. (2002) observes that folks have a bent to reveal exaggerated conviction more or less their own judgments. Certainty will cause phantasm of management. In line with Pompian (2012), illusion of manage bias could be a bias whereby humans tend to believe that they might management or have an effect on outcomes while, in reality, they cannot. An analysis through the author indicated that alternatives, challenge familiarity, competition and energetic involvement will all inflate poise and generate such illusion. This may hint investor to each modification additional than is prudent or inadequately diversify portfolios, as AN instance, thanks to familiarity thanks to having worked within the agency. Another materialization of sure thing is self-ascription bias. Pompian (2012) explained this bias as a result of the tendency of individuals to attribute their success to innate look which incorporates experience or foresight, whereas larger often blaming disasters on outside influence inclusive of dangerous fate. Therefore, self-ascription patron will, once a duration of successful finance , trustiness

Uncertainty avoidance reflects the extent to which a society accepts uncertainty and risk. It shows how much members of a society are anxious about the unknown, and as a consequence, attempt to cope with anxiety by minimizing uncertainty. In cultures with strong uncertainty avoidance, people prefer explicit rules (e.g. about religion and food) and formally structured activities, and employees tend to remain longer with their present employer. In cultures with weak uncertainty avoidance, people prefer implicit or flexible rules or guidelines and informal activities. Employees tend to change employers more frequently.