Swiss and German researchers have recently finished a study that looked into this general factor of individual risk preference, “which remains stable over time” and is similar to the general Intelligence Quotient (IQ). The study, which was published in two journals (Science Advances and Nature Human Behaviour) was based on findings that involved 1,500 participants. (Related: Preventable Lifestyle Risks Kill More Than One Million Americans Yearly.)
Individuals often make life-changing decisions based on various factors, but we don't really know the nature of the risk preference that significantly affects risk-related decisions. Does a person's risk preference have anything to do with the context or is it mostly the same even in different scenarios? It looks like the answer to both questions is “yes,” and findings from a large-scale study done by the Max Planck Institute for Human Development in Berlin and the University of Basel, which was accomplished with funding from the Swiss National Science Foundation, has the data to prove this.
The Swiss and German researchers used three unique approaches to evaluate the risk preferences of 1,507 adults aged 20 to 36 years old: “self-reports on hypothetical risk scenarios,” “experimental behavioral tests involving financial incentives,” and “information on actual risky activities in everyday life.”
Overall, the participants finished 39 tests in one day. The researchers then asked the 109 participants to retake the tests after six months to analyze the stability of the risk preference over time. Past studies on risk preference often relied on only one or only a handful of measurement instruments.
Dr. Renato Frey from the University of Basel and the Max Planck Institute for Human Development shared, “Our findings indicate that risk-taking propensity has a psychometric structure similar to that of psychological personality characteristics. Like the general factor of intelligence, there is also a general factor of risk preference."
He added, "In other words, your willingness to take risks may vary across different areas of your life, but it will always be affected by the underlying general factor of risk preference." To support this theory, the study's results revealed that a person's general factor of risk preference stays stable over time.
The study also found that both the hypothetical scenarios and the reports on actual risk-taking behavior helped determine a similar analysis of a person's unique risk preference. Meanwhile, a new picture resulted from the experimental behavior tests. Based on a comprehensive study of the differences, the researchers confirmed that for the different behavior test, participants used unique decision-making strategies.
These strategies varied according to the type of behavioral task, like when risk was presented in the context of a game, or via a more abstract form. Prof. Dr. Jörg Rieskamp from the University of Basel stated, “These results show that behavioral tests, which tend to be the preferred approach of economists, often give an inconsistent picture of people's risk preferences that is difficult to explain with unified theories of risk behavior."
Future studies can benefit from these results because they have both a methodological and theoretical significance. Prof. Dr. Ralph Hertwig from the Max Planck Institute for Human Development commented, “Our work is a wake-up call for researchers, who need to think twice about the various measurement traditions. In particular, there needs to be a better understanding of what exactly the behavioral tasks measure. It seems clear that they don't assess risk preference across situations." He concluded, “But our finding of a general factor of risk preference -- based on self-reports and frequency measures of actual risky activities -- suggests that risk preference is a personality characteristic in its own right. This insight will make it possible to examine the biological underpinnings of risk preference in future studies.”
Tips on how to be bolder
If you've always wondered whether “fortune favors the brave” and you want to take more risks, here are some tips you can try to become bolder:
- Don't let negativity bias get you down – “Negativity bias” pertains to the way we exaggerate the risk that comes with certain decisions while underestimating the opportunities that can come with others. Like the quote from T.S. Eliot says, “Only those who will risk going too far can possibly find out how far one can go.”
- Practice self-efficacy -- Self-efficacy is an individual's confidence in their ability to produce positive results. If you're nervous about taking big risks, start small.
- Know when to take risks -- Being bolder doesn't mean being careless, it means you have to do some research first before doing anything big.
- Failure is normal – One step to becoming a bolder person is knowing that any risk will sometimes result in failure and that it's not the end of the world. Prepare yourself mentally so you can deal with failure.
- Take the leap – Stop over-analyzing things and do something risky, at least when your gut tells you that it's the right time to do it.
You can read more articles about other scientific breakthroughs at Research.news.
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