Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

With governments redistributing more responsibilities unto citizens, individuals have an increasing need for financial resources acting as a buffer against life’s setbacks and unexpected expenditures. The purpose of this study was to examine psychological determinants of saving for a financial buffer, for which a theoretical model was formulated based on the theory of planned behaviour with three new, domain-specific psychological constructs: financial risk tolerance, regulatory focus and perceived saving barriers. Data were collected with an online questionnaire that utilised convenience and snowball sampling to target both students and working individuals (N = 272). Regression analyses offered support for the proposed model, showing that participants’ financial risk tolerance (i.e. an individual’s attitude towards financial risk taking) was significantly associated with their subjective financial knowledge and regulatory focus. Furthermore, perceived financial self-efficacy and financial risk tolerance both predicted participants’ intention to save for a financial buffer. In turn, perceived financial self-efficacy and saving intention predicted self-reported saving behaviour. Importantly, perceived saving barriers mediated the relationship between saving intention and self-reported saving behaviour. In line with the proposed model, results also showed that a specific attitude-based construct (financial risk tolerance) is a considerably better predictor of saving intention than general measures of attitude towards saving. This study is also the first to demonstrate that regulatory focus influences financial risk tolerance. Implications of these findings for stimulating saving behaviour are discussed.     

How to trust? The importance of self‐efficacy and social trust in public responses to industrial risks

Although a great deal of research has linked both self‐efficacy and social trust to risk responses, one overlooked question concerns the association between self‐efficacy and institutional trust. The purpose of this study was to investigate the main and combined effects of trust in the self and trust in responsible agencies to affective responses and information sufficiency. Survey respondents in this study were placed into one of four categories based on their levels of self‐efficacy (high/low) and social trust (high/low), including confidence, independence, dependence and insecure groups. Based on survey data (n = 466), the accuracy of the four‐group classification was tested. Indeed, we found that our classification system correlated with responses. Both self‐efficacy and institutional trust were found to contribute to emotional risk responses, as well as risk information needs and preferences for risk information.     

Changes in perceptions of risk and competence among beginning scuba divers

The adventure experience paradigm theorizes that individuals engaging in high‐risk recreation exhibit changes in perceptions of risk and competence. While previous research has examined changes in perceptions for individuals engaged in short‐term, high‐risk recreation, there is no research examining patterns of perceptual change through extended involvement in risk recreation activities. The purpose of this study was to examine changes in perceived risk and perceived competence throughout a 14‐week basic scuba diving course. Participants (n = 57) completed the dimensions of an adventure experience (DAE) at the start and end of the course as well as before and after their first time on scuba, first open water dive, and first off shore dive. Changes in perceived risk and perceived competence were examined. Results indicated a significant decrease in perceived risk and a significant increase in both competence factors (attitudes and abilities) pre‐to‐post course and at most time intervals. Although statistically significant, changes in perceived risk and attitude may be of less practical significance (around 0.6 on a 10‐point scale). However, perceived ability increased more noticeably (2.6 on a 10‐point scale). The findings of this study support and further confirm the literature, which indicates repeated involvement in high‐risk recreation decreases participants' perceptions of risk and increases perceptions of competence. Recommendations include further study of DAE psychometrics and research on how changes in perceptions of risk and competence are related to outcomes in adventure recreation.     

A quantitative assessment of the insider/outsider dimension of the cultural theory of risk and place

This paper examines two hypotheses of risk perception: cultural theory's distinction between insiders and outsiders and the idea that risk perceptions and their determinants differ substantially from one place to the next for the same point‐source hazard. These hypotheses are juxtaposed in cross‐tabulations and logistic regression models with competing explanations of perceived risk in communities living with technological environmental hazards: sound management, benefits, fair facility siting and sociodemographics. The data come from a telephone survey of 455 residents in Swan Hills (n = 173), Fort Assiniboine (n = 171) and Kinuso (n = 111), Alberta, Canada who are all near a large‐scale hazardous waste treatment facility. Considerable support is found for the insider/outsider thesis in terms of the highest ranked information sources and trust to ensure safety. Place differences are clear where, for example, the least facility‐related concern is in Swan Hills (31%) 12 km away, the highest is in Kinuso (81%) 70 km away and moderately high concern is in Fort Assiniboine (62%) which is also 70 km away. This study highlights the importance of fair facility siting, the need to go beyond cultural bias analysis when studying the cultural theory of risk, and suggests further exploration of the notion of tailoring risk communication that is place specific, and emphasizes channels that may be defined as ‘outsider’ and ‘insider’.     

The influence of perceived risk on Internet shopping behavior: a multidimensional perspective

The present study analyzes the influence that perceived risk in online shopping has on the process of e‐commerce adoption by end consumers. With this aim, the Technology Acceptance Model is taken as a reference framework, proposing an Extended E‐Commerce Acceptance Model that includes the diverse constructs of perceived risk: financial, performance, social, time, psychological and privacy. Empirical evidence is obtained from two samples, one is composed by Internet users with no experience in web shopping and the other is formed by online buyers. The results obtained confirm that the intention to shop through the Internet is positively influenced by general attitude toward the system and negatively influenced by the risk associated with the Web. Regarding the importance of the risk dimensions considered in the study, the economic and performance facets are the ones that have a greater influence on e‐commerce adoption, while social and time dimensions are the less relevant.     

Effects of emotional state on behavioral responsiveness to personal risk feedback

The influence of incidental emotion on responsiveness to risk feedback was investigated. One hundred and eighty‐seven male and female undergraduate students experienced a film emotion induction procedure to elicit happiness, sadness, or neutral affect. They then received false feedback indicating that their risk of getting a fictional type of influenza was high or low, and were given the chance to obtain more information about this type of flu and how to prevent it. Among low‐risk participants, experiencing any emotion (happy or sad) resulted in obtaining more information than those in the neutral condition. Conversely, high‐risk participants who experienced any emotion took less information than those in the neutral group. High‐risk feedback produced less positive affect, more negative affect and worry, and higher risk perceptions than low‐risk feedback. The findings have implications for how threatening risk feedback will affect information seeking behavior in the context of an emotional state.     

The joint influence of financial risk perception and risk tolerance on individual investment decision‐making

The increasing complexity of the investment environment has accelerated the need for better quality financial advice services. Central to quality advice is advisers’ accurate assessment of their clients’ risk characteristics. Typically a client's risk characteristic is assessed by measuring the client's risk tolerance but not risk perception. To assess whether this practice fails to fully capture the client's risk profile, we explore both risk tolerance and risk perception in the investment decision‐making context. Using Australian online survey data of financial adviser clients (n = 364), our results reveal that risk tolerance influences risky‐asset allocation directly and indirectly through risk perception. These results thus clarify the joint role of both risk constructs in the investment making decision and highlight the importance of assessing both in the provision of client financial advice services. Importantly, our results validate a new comprehensive risk perception measure applicable in the financial advice context.     

The siting of a research centre on clean coal combustion and CO2 capture in Spain: Some notes on the relationship between trust and lack of public information

This paper aims to gain a better understanding of the role played by trust in the context of scarcity of public information, vis‐à‐vis the installation of a Centre for Investigation in Advanced Technologies (Centro de Investigación de Tecnologías Avanzadas, CITA) to be located in a coal‐rich region of Spain. Data from semi‐structured interviews (n = 15), a questionnaire survey (n = 400) and focus group sessions (2) are drawn together to reveal how the local community perceives the proposed CITA scheme, and how this relates to the level of trust placed in the project promoters. Results illustrate how a lay community gives meaning to an unknown technological project, trying to place it within its appropriate economic, social and political context, and relating it to prior knowledge and experiences. Results also show that, in contrast to certain risk communication theories, the public is able to place trust in a technological activity and their promoters despite a general lack of knowledge on either.     

Institutionalization of risk and safety management at the local governmental level in Sweden

The starting point for this article is the need for empirical knowledge about organizational configuration for societal risk and safety management activities in a modern welfare society. In this paper, we use Sweden as an empirical frame to analyze the administrative management structure at the local governmental level. The analysis is based on statistical analysis of information from a web‐survey with administrative chief/head officials (n = 1283) with responsibilities for different municipal functions and sectors. The sample represented 25% of the Swedish municipalities (n = 290) and the response rate was approximately 60% (n = 766). The responses to two sets of questions (25 and 45 questions) are used for statistical analyses of management structures and task distribution within the municipal organizations. Principal component factor analyses with Varimax and Kaiser's Normalization was applied as a structure detection method. The results indicate a clear and uniform way to institutionalize societal risk and safety management at the local level. Furthermore, the management course of action is found to have different types of value characters. The implications that arise from the patterns identified in this study are considered to be of general relevance and topicality for research and practice in this area.     

Monetary Policy,Bank Lending,and the Risk‐Pricing Channel

This paper identifies a monetary policy channel through the risk pricing of bank debt in the market for jumbo certificates of deposit (jumbo CDs). Adverse policy shocks increase debt holder perceptions of bank default, increasing the risk premia for some banks, thereby decreasing their external funding of loans. The results show that contractionary policy increases the sensitivity of jumbo‐CD spreads to leverage and asset risk for small banks, and to leverage for large banks. The results also show a distributional and aggregate effect on banking system jumbo CDs and total loans, producing a risk‐pricing (or market discipline) channel. This channel has implications for monetary and regulatory policies, and financial stability.     

Has Finance Made the World Riskier?

Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much greater access to finance for firms and households. On net, this has made the world much better off. Concurrently, however, we have also seen the emergence of a whole range of intermediaries, whose size and appetite for risk may expand over the cycle. Not only can these intermediaries accentuate real fluctuations, they can also leave themselves exposed to certain small probability risks that their own collective behaviour makes more likely. As a result, under some conditions, economies may be more exposed to financial‐sector‐induced turmoil than in the past. The paper discusses the implications for monetary policy and prudential supervision. In particular, it suggests market‐friendly policies that would reduce the incentive of intermediary managers to take excessive risk.     

The UNCITRAL Model Law on Cross‐border Insolvency and the Rule of Law

The rule of law is a concept that was often considered in the context of national legal systems. However, it is now commonly being promoted as significant in the transnational context. This paper addresses its importance within the transnational economic and commercial context, in particular in response to cross‐border insolvencies. It examines how the UNCITRAL Model Law on Cross‐border Insolvency and its Guide to Enactment and Interpretation promote key tenets of the rule of law in transnational disputes arising out of businesses in financial distress. In particular, some examples are provided of cases from the Asia‐Pacific region in which the Model Law has been applied to demonstrate how the rule of law may be promoted in an insolvency context. Finally, the paper concludes that the adoption of the UNCITRAL Model Law on Cross‐border Insolvency promotes transparency, accountability and predictability, which in turn support stability in financial systems and credit relationships and thus trade within a global market. This is a direct result of adherence to elements of the rule of law principle. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd     

Individual financial risk tolerance and the global financial crisis

We investigate individual investors’ tolerance towards financial risk by focusing on changes associated with the global financial crisis (GFC) of 2007–2009. Financial risk tolerance (FRT) is analysed longitudinally controlling for demographic, socio‐economic and regional variations. In absolute terms, the change in FRT is small and contrasts with a popular view that risk tolerance is an elastic psychological state overly influenced by the pervading market conditions. Even in the presence of significant financial events, FRT tends to be a reasonably stable attribute in the shorter term but possibly influenced and reshaped by events more gradually over time.     

Determining overall risk

The risk journal literature lacks a clear and simple account of the conceptual issues involved in determining the overall risk of an action, and in explaining how risk is additive. This article attempts to bring a measure of clarity to these issues in as basic and non‐technical a way as possible. First of all, the view that risk is ‘expected harm’ is explained. The view that risk is a quantitative concept is then defended. The distinction between the risk run by doing action A in respect of possible outcome x, and the overall risk run by doing action A in general is explained, as is the position that the overall risk of A is determined by summing the risks of each possible harm that A could give rise to. The article then explains how risks can be summed over time, as long as the probabilities involved are determined according to probability theory. Finally, the article explains that in a doing a risk‐benefit analysis of A, positive aspects of a possible outcome x, where x is harmful on balance, must be incorporated into x's level of harm rather than incorporated into the benefit side of the risk‐benefit analysis of A.     

Fund Management and Systemic Risk – Lessons from the Global Financial Crisis

Fund managers play an important role in increasing efficiency and stability in financial markets. But research also indicates that fund management in certain circumstances may contribute to the buildup of systemic risk and severity of financial crises. The global financial crisis provided a number of new experiences on the contribution of fund managers to systemic risk. In this article, we focus on these lessons from the crisis. We distinguish between three sources of systemic risk in the financial system that may arise from fund management: insufficient credit risk transfer to fund managers; runs on funds that cause sudden reductions in funding to banks and other financial entities; and contagion through business ties between fund managers and their sponsors. Our discussion relates to the current intense debate on the role the so‐called shadow banking system played in the global financial crisis. Several regulatory initiatives have been launched or suggested to reduce the systemic risk arising from non‐bank financial entities, and we briefly discuss the likely impact of these on the sources of systemic risk outlined in the article.     

The effects of risk‐taking tendency on risk choice and pre‐ and post‐decisional information selection

Ideally, people seek and select information about unfamiliar risks with which they are confronted, before they make a risk choice. This study investigated what happens when people do not have this opportunity. The main question was how risk‐taking tendency influences intuitive risk decisions and how this impacts subsequent information search and subsequent choices. In the present study, participants had to make a choice about an unfamiliar risk, either before or after they had had the opportunity to search for (risk‐promoting or risk‐averse) information. In the condition where they could only seek for information after they had made a choice, they had to reconsider their first choice and make a second risk choice. We expected that (1) risk‐taking tendency would impact people's risk choices, but only in the situation where they have little information. On the basis of cognitive dissonance theory, it was furthermore predicted that (2) risk‐taking tendency and (3) initial risk choice would affect risk information selection. Furthermore, we predicted that (4) the first risk choice and (5) the risk information selected would influence the subsequent risk choice. The results suggest that if people make a first, intuitive decision about an unknown risk, risk‐taking tendency has an effect on the choice, but that this does not happen when people can first select information. Risk‐taking tendency did not influence information selection, but initial choice did (although in another way than we expected). Furthermore, both the first risk choice and the risk information selected affected subsequent risk choices. These findings suggest that people often make initial intuitive decisions that are influenced by personality characteristics, and that are subsequently difficult to change.     

Risk Perception and Worry Related to Adolescents' Judgement of Three Types of Risk

The core aim of this study was to examine determinants of anticipated worry related to three types of risk among adolescents. The participants were Norwegian high‐school students aged 15–19 years (n = 335). They were students at 6 high schools and a total of 15 randomly selected school classes participated in the study. All the students were asked to fill in a self‐completion questionnaire. The response rate was 100 per cent. The participants were shown three video sequences of three‐minute conversations between a person and a listener discussing three risk sources, which each had developed into a problem (drug use, depression, and sexual abuse). The video sequences were shown to the students when they were in their classes. The results showed that there were gender differences in probability assessments as well as in anticipated worry related to the three types of risk. There were also differences in worry depending on the respondent's past experience with an identical or similar problem or risk. In addition to cognitive evaluations, own experience and gender, general worry, social support seeking, anxiety and depression significantly predicted worry. These variables explained 52 per cent of the variance. Worry may be a significant predictor of risk behaviour as well as decisions concerning risks and risk reduction. The results are related to the risk‐as‐feelings hypothesis (Loewenstein, Weber, Hsee and Welch) and other risk decision models are also discussed.     

Misclassifications in financial risk tolerance

This paper analyses the empirical risk tolerance of individuals and the role of physiological measures of risk perception. By using a test that mimics the financial decision process in a laboratory setting (N?=?445), we obtained an ex-post empirical measure of individual risk tolerance. Predictive classification models allow us to evaluate the accuracy of two alternative risk-tolerance forecasting methods: a self-report questionnaire and a psycho-physiological experiment. We find that accuracy of self-assessments is low and that misclassifications resulting from questionnaires vary from 36 to 65%: individuals asked to self-evaluate their risk tolerance reveal a high probability of failing their judgement, i.e. they behave as risk takers, even if, before the task, they define themselves as risk averse (and vice versa). Conversely, when the risk-tolerance forecast is obtained from individuals’ physiological arousal, observed via their somatic activation before risky choices, the rate of misclassification is considerably lower (~17%). Emotions are confirmed to influence the financial risk-taking process, enhancing the accuracy of the individual risk-tolerance forecasting activity. Self-report questionnaires, conversely, could lead to inadequate risk-tolerance assessments, with consequent unsuitable investment decisions. Bridging these results from the individual to the institutional level, our findings should enhance cautiousness, among regulators and financial institutions, on the (ab)use of risk tolerance questionnaires as tools for classifying individuals’ behaviour under risk.     

Predictors of the perceived risk of climate change and preferred resource levels for climate change management programs

In a 2013 US national public opinion survey, data were collected from 1321 adult respondents for five psychometric variables – Dread, Scientists’ Level of Understanding, Public’s Level of Understanding, Number Affected, and Likelihood – for six threats (sea-level rise, increased flooding, and four others) associated with climate change. Respondents also rated perceived risk and indicated the resource level that they believed should be invested in management programs for each threat. Responses did not vary significantly across the six threats, so they were combined. The survey collected standard demographic information, as well as measuring climate change knowledge and environmental values (New Ecological Paradigm, NEP). Psychometric variables predicted perceived risk extremely well (R = .890, p < .001); all five psychometric variables were significant predictors. The results were generally consistent with previous research except that Scientists’ Level of Understanding was a positive, rather than negative, predictor of perceived risk. Jointly the demographic variables, knowledge, and environmental values significantly predicted perceived risk (R = .504, p < .001). Consistent with previous research, significant positive predictors were age, Democratic Party Identification, and NEP score; significant negative predictors were male gender and White ethnicity. When demographic variables, knowledge, and environmental values were added to psychometric ones, only the psychometric variables were statistically significant predictors. Perceived risk strongly predicted resource level (r = .772, p < .001). Adding demographic, knowledge, and environmental value variables to perceived risk as predictors of resource level did not appreciably increase overall predictive ability (r = .790, p < .001), although White ethnicity emerged as a significant negative predictor and religiosity, Democratic Party Identification, Liberal Political Ideology, and NEP score were significant positive predictors. The results demonstrate that risk perceptions of climate change and policy preferences among climate change management options are highly predictable as a function of demographic, knowledge, environmental values, and psychometric variables. Among these, psychometric variables were found to be the strongest predictors.     

Time Period and Risk Measures in the General Risk Equation

In an earlier paper, a general risk equation, applicable to all non growth systems, and inclusive of financial systems, was derived. It related expected throughput capacity of any system to both system resources and positive risk of loss of throughput capacity. Two risk measures were required, a new MEL‐risk measure, and the conventional standard‐deviation risk measure.

In this paper we show that the two apparently distinct risk measures are intimately related, and that which one is appropriate depends merely on the time period over which the risk is calculated. We show, ultimately by application of the Central Limit Theorem, that if we merely sufficiently alter the time period, at some point the need for one measure will transition into the need for the other, without any change in the underlying physical system.

This leads to a comprehensive risk measure that defaults to either the MEL‐risk measure, or standard‐deviation measure, depending not on the physical system, but merely on the time period over which the risk is calculated.