How do people perceive graphical risk communication? The role of subjective numeracy

This study aims to evaluate directly how a graphical risk ladder is perceived and how this perception is related to people’s subjective numeracy. Gaze durations and frequencies were used to examine visual attention. Participants (N = 47) appeared to focus on the target risk information, whereas referential information was less attended. Subjective numeracy was negatively correlated with total watching time and the absolute number of gaze events. Results suggest that participants with low subjective numeracy have more difficulty in comprehending the graph, and that they process the graphical information less efficiently than the participants with high subjective numeracy. In addition, the position of referential risks on risk ladders could influence people’s risk perception. Based on these findings, we provide some implications for the design of risk communication graphs and for the use of graphs in informing persons with low subjective numeracy about risks.     

Beyond brainstorming: The effectiveness of computer-mediated communication for convergence and negotiation tasks

Although a considerable body of research in information systems has established that computer-mediated communication (CMC) is beneficial for brainstorming (idea generation) tasks, less is known about its effectiveness for more complex decision-making tasks. This paper reports the results of two experiments comparing the performance of face-to-face and CMC teams in decision-making tasks that move beyond brainstorming. In the first experiment, the performance of face-to-face and computer-mediated teams was compared in two tasks: one requiring participants to engage in convergent thinking and a second brainstorming task requiring divergent thinking. Consistent with predictions derived from McGrath's task circumplex model, the results of experiment one reveal that participants using computer-mediated communication perform significantly better than those interacting face-to-face on the divergent (brainstorming) task. On the convergent task, computer-mediated and face-to-face teams performed equally well; i.e., there was not a significant difference in their performance. In the second experiment, the performance of face-to-face and computer-mediated teams was again compared in two tasks: an integrative negotiation task and an idea-generation task. The results of the second experiment were similar to those of experiment one, in that computer-mediated teams significantly outperformed face-to-face teams in the idea-generation task, while computer-mediated and face-to-face teams performed equally well on the integrative negotiation task. These experiments contribute to the literature by shedding additional light on the conditions under which computer-mediated communication is as effective as, and in some cases more effective than, face-to-face interaction.     

Evaluation Periods and Asset Prices in a Market Experiment

We test whether the frequency of feedback information about the performance of an investment portfolio and the flexibility with which the investor can change the portfolio influence her risk attitude in markets. In line with the prediction of myopic loss aversion (Benartzi and Thaler (1995)), we find that more information and more flexibility result in less risk taking. Market prices of risky assets are significantly higher if feedback frequency and decision flexibility are reduced. This result supports the findings from individual decision making, and shows that market interactions do not eliminate such behavior or its consequences for prices.     

Responses to risk in tournaments

Due to their inefficient use of information, promotion incentives, which can be modeled as tournaments, can induce sub-optimal actions on the part of managers. This is a problem for firms because it leads to choices that do not maximize profit. This also can pose interpretation and comparison problems for research studies that employ tournament incentives. We demonstrate a situation where tournament incentives eliminate the effects of project risk on managers’ decisions as concerns with winning take precedence over concerns of maximizing expected profit. We also report the results of an experiment and find actual behavior to be fairly well explained by theoretical predictions. However, we find systematic deviations that lead to decisions that are more consistent with profit maximization than the economic theory predicts.     

Evaluating lotteries,risks, and risk‐mitigation programs

Two experiments were designed to explore the existence of systematic differences in risk perceptions and risk attitudes between Chinese and US participants. The first experiment involved ranking monetary lotteries using measures of perceived riskiness and willingness to pay (WTP). Several simple heuristics were evaluated to predict perceived riskiness and WTP. Using WTP responses, Cumulative Prospect Theory functions were determined for participants from both countries. The second experiment involved ranking multi‐attribute real‐world risks and associated risk‐mitigation programs using measures of concern and preference, respectively. Compared to their US counterparts, Chinese participants are found to be less risk averse, more concerned about risks with higher catastrophic potential, and more in favor of risk‐mitigation programs with greater scope of benefit. The results also reveal higher within‐group agreement by Chinese participants for all tasks. For both national groups, the within‐group agreement was highest when ranking risk‐mitigation programs, but lowest when ranking lotteries with negative expected value. The implications of cross‐cultural versus cross‐task variation are discussed.     

Determinants of risk behaviour: effects of perceived risks and risk attitude on farmer’s adoption of risk management strategies

The importance of risk perception and risk attitude for understanding individual’s risk behaviour are independently well described in literature, but rarely combined in an integrated approach. In this study, we propose a model assuming the choice to implement certain risk management strategies to be directly driven by both perceptions of risks and risk attitude. Other determinants influence the intention to apply different risk strategies mainly indirectly, mediated by risk perception and risk attitude. This conceptual model is empirically tested, using structural equation modelling, for understanding the intention of farmers to implement different common risk management strategies at their farms. Data are gathered in a survey completed by 500 farmers from the Flanders region in Belgium, investigating attitudes towards farming, perceived past exposure to risk, socio-demographic characteristics, farm size, perceptions of the major sources of farm business risk, risk attitudes and the intention to apply common risk management strategies. Our major findings are: (i) perception of major farm business risks have no significant impact on the intention of applying any of the risk strategies under study, (ii) risk attitude does have a significant impact. Therefore, rather than objective risk faced and the subjective interpretation thereof, it is the general risk attitude that influence intended risk strategies to be implemented. A distinction can be made between farmers willing to take risk, who are more inclined to apply ex-ante risk management strategies and risk averse farmers who are less inclined to implement ex-ante risk management strategies but rather cope with the consequences and diminish their effects ex-post when risks have occurred.     

Cognitive style factors affecting database query performance

As end-user computing becomes more pervasive, an organization's success increasingly depends on the ability of end-users, usually in managerial positions, to extract appropriate data from both internal and external sources. Many of these data sources include or are derived from the organization's accounting information systems. Managerial end-users with different personal characteristics and approaches are likely to compose queries of differing levels of accuracy when searching the data contained within these accounting information systems.This research investigates how cognitive style elements of personality influence managerial end-user performance in database querying tasks. A laboratory experiment was conducted in which participants generated queries to retrieve information from an accounting information system to satisfy typical information requirements. The experiment investigated the influence of personality on the accuracy of queries of varying degrees of complexity. Relying on the Myers–Briggs personality instrument, results show that perceiving individuals (as opposed to judging individuals) who rely on intuition (as opposed to sensing) composed queries more accurately. As expected, query complexity and academic performance also explain the success of data extraction tasks.     

Security or opportunity: the influence of risk‐taking tendency on risk information preference

It has been suggested that risk avoiders and risk takers differ in the extent to which they focus on the worst and best outcomes of a risky activity. By implication risk avoiders and risk takers should also differ in their risk information preferences. Specifically, as risk avoiders focus more on the worst outcomes, it was hypothesized that they would prefer negative information about the risk. In contrast, as risk takers focus more on the best outcomes, it was hypothesized that they would prefer positive information about the risk. In an information selection task, subjects could select newspaper headlines that indicated negative and positive information about a variety of risks. Contrary to the hypothesis, risk avoiders selected more positive information than risk takers. The results are discussed in relation to the influence of personality on risk taking. One tentative explanation is that differences in anxiety between risk avoiders and risk takers account for these results in that risk avoiders try to find reassurance by seeking positive information. Another is that the participants were seeking reassurance in a relatively involuntary confrontation with risks.     

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.     

The effects of experience and task difficulty on accuracy and confidence assessments of auditors

This study extends prior research in psychology and auditing by examining the effects of audit experience and task difficulty on control risk evaluation. It also examines whether the effect of framing is mitigated by the simultaneous presentation of information. Ninety‐eight auditors performed a control risk evaluation task and recorded their judgement and their confidence. We find that judgement confidence increases with audit experience and that judgement confidence decreases as perceived task difficulty increases. However, we find no relation between audit experience and judgement accuracy or between perceived task difficulty and judgement accuracy. In addition, we find a significant negative relation between judgement confidence and judgement accuracy, which indicates that the participants' confidence is not appropriate. As expected, there is no framing effect when information is presented simultaneously.     

Investigating the operation of the affect heuristic: is it an associative construct?

Affect is of central importance in risk perception and risky decision-making, and the affect heuristic is a very influential construct developed in relation to this. We examined whether this heuristic operates at an associative level of processing as, despite much theorising, empirical evidence on this issue is lacking. We compared affective heuristic task performance with performance on established implicit association tasks. Participants (n?=?151) completed explicit attitude and risk measures, and five experimental tasks (three Go/No-Go Association Tasks (GNAT), a priming task and a time-pressured affect heuristic task). A modified ‘risk-benefit’ GNAT provided a speeded analogue of the affect heuristic task which was equivalent to the evaluative GNAT in terms of response mode and cognitive effort. Affect heuristic task performance was not associated with implicit task performance. The evaluative GNAT did not correlate with the risk-benefit GNAT (speeded affect heuristic task). However, affect heuristic task performance was strongly associated with, and significantly predicted by, explicit affective attitude and explicit risk measures suggesting that this heuristic may primarily reflect deliberative rather than associative processing. Findings contradict the (much cited) notion that this important psychological construct operates at an associative level. However, the conclusions that can be drawn from this study are limited by the implicit attitude measures used here. In future research, it would be desirable to use different measures of implicit associations, e.g. the Single-Category Implicit Association task, to further interrogate the processes operating within the affect heuristic.     

An explanatory analysis of perceived risk decision weights (perceived-risk attitudes) and perceived benefit decision weights (perceived-benefit attitudes) in risk-value models

Abstract

All decision making requires a trade-off between risks and values. While Markowitz defined risk as the variance of returns (thus reasoning that investors should consider it as undesirable), the more general risk–value framework allows risk to be defined as a person’s subjective judgments. Psychological risk–return models go further, decomposing observed behavior (risk taking) into two processes: (1) a judgment of benefits and risks and (2) a trade-off between perceived benefits and perceived risks, with a person-specific willingness to trade-off units of returns (benefits) for units of risk, conceptualized as attitude toward perceived risk (PRA) and attitude toward perceived benefits (PBA). PRA and PBA describe the degree to which people find perceived risks and benefits attractive, all other things being equal, and are assumed to be relatively stable across situations and domains. We test this assumption in an empirical study, checking the temporal stability of PRA and PBA (using the a Domain-Specific Risk-Taking [DOSPERT] scale ) and the cross-task stability of PBA (performing comparisons between the DOSPERT and the Columbia Card Task[CCT]). Finally, we explain both PRA and PBA using the Big Five personality dimensions and Stimulating–Instrumental Risk Inventory (SIRI), showing that PBA weights increase with openness to experience, while the negative effect of perceived risk on risk taking (PRA) increases with conscientiousness and decreases with stimulating risk taking. The results show that PBA and PRA can be treated as traits which, in some instances at least, are stable across time and tasks, and which can be partially explained by personality, providing a link to the idea of a personality dependent ‘ideal point’ for risk preference.     

Specificity of reinforcement for risk behaviors of the Balloon Analog Risk Task using math models of performance

Risky decision-making has been studied using multitrial behavioral tasks. Concordance of such tasks to risky behaviors could be improved by: (1) mathematically modeling the components of decision change and (2) providing reinforcement specific to the risk behavior studied. Men completed two Balloon Analog Risk Tasks (BART). One provided financial reinforcement (money) and the other provided sexual reinforcement (seconds of erotic film viewing). Parameters of a mathematical model of BART performance were fit to each individual. Correlations between the model parameters and four risk categories (financial, sexual, antisociality, and substance use) demonstrated predictive utility for the same behaviors regardless of task reinforcement, providing little evidence of reinforcement specificity. A reward sensitivity parameter was uniquely related to sexual risk behavior. Additional analyses explored parameter stability fit to fewer trials.     

The relationship between risk and expected return in Europe

We employ MIDAS (mixed data sampling) to study the risk–expected return trade-off in several European stock indices. Using MIDAS, we report that in most indices there is a significant positive relationship between risk and expected return. This strongly contrasts with the result we obtain when we employ both symmetric and asymmetric GARCH models for conditional variance. We also find that asymmetric specifications of the variance process within the MIDAS framework improve the relationship between risk and expected return. As an additional application, we analyze the extent to which European stock markets are integrated, which is a particularly relevant issue, especially following the launch of the Euro in January 1999. Finally, we propose a bivariate MIDAS specification to test the pricing significance of the hedging component within an intertemporal risk–return trade-off with multiple European market indices.     

A theory of risk disclosure

In this paper, we consider the price effects of risk disclosure. We develop a model in which investors are uncertain about the variance of a firm’s cash flows and the firm releases an imperfect signal regarding this variance. In our model, uncertainty over the riskiness of a firm’s cash flows leads to a variance uncertainty premium in its price. We demonstrate that risk disclosure decreases the firm’s cost of capital by reducing this premium and that the market response to risk disclosure is small when the expected level of risk is high. Moreover, we find that firms acquire and disclose more risk information when their cash flow risk is greater than expected. Finally, we demonstrate that in a multi-asset setting, only risk disclosure concerning systematic risks will impact the cost of capital.     

From BASEL III to BASEL IV and beyond: Expected shortfall and expectile risk measures

The article contributes to the ongoing search for a market risk measure that is both coherent and elicitable. We compare two traditional measures, namely Value-at-Risk and the expected shortfall, with another relatively novel one established on the expectile probability term. Our research is based on five models: Black–Scholes, exponential tempered stable, Heston, Bates and another stochastic volatility model with a tempered stable jump correction. We apply the general Fourier inversion formula to derive closed form formulas for calculating not only the expectile based risk measure but also the Value-at-Risk and the expected shortfall. These models are calibrated by combining nonlinear programming with simulated annealing at a moving window. Additionally, we compare the generated values of the risk measures with the real ones. Last but not least, we modify the expectile based risk measure as well as the expected shortfall by introducing correction coefficients.     

Behavioral dynamics of tax compliance when taxpayer assistance services are available

This research utilizes a laboratory experiment involving a large and diverse set of participants to investigate the behavioral dynamics of tax reporting in a setting where tax liability is uncertain and the tax agency makes a service available to help resolve the uncertainty. Our design varies the level of liability uncertainty, as well as the cost and quality of the information service. We find that, in the absence of an information service regime, the behavioral response to past audits, whether penalizing or not, is to report a lower tax liability. However, with an information service present (regardless of whether it is accessed), behavioral responses to past audits are no longer found. Interestingly, information service acquisition decreases modestly in response to a penalizing audit, although as the experiment progressed a larger proportion of participants were compliant, offsetting this effect. Mirroring the few experimental studies that have investigated tax liability information services, we find that providing these services has a strong and positive effect on tax compliance.     

An examination of order effects in auditors' inherent risk assessments

While recency effects have been reported in a variety of audit tasks, recent studies suggest that these effects may be mitigated under certain conditions. The importance of investigating order effects in auditors' judgments rests with its potential to impact on the efficiency and effectiveness of audits. Since current studies suggest that recency effects may not impact on all audit situations, it is necessary to identify conditions or variables in the task environment that either induce or mitigate recency.
This study examines the occurrence of order effects in auditors' inherent risk assessments, a task not previously examined. Using a case study administered to 70 auditors, this study found that auditors' judgments were not influenced by the order in which audit evidence was evaluated. Rather, the results suggest that judgments of inherent risk may be biased towards conservatism. This may not be surprising given the negative consequences associated with failing to adequately plan an audit. This may cause auditors to act cautiously and thus mitigate recency effects.     

A longitudinal study of concern and judged risk: the case of Ebola in the United States, 2014–2015

The goal of the present study was to investigate whether playing a serious game concerning natural and man-made risks leads to increased risk awareness and additional information search. As an experimental task, we developed a serious board game. Fifty-six students participated in the experiment; half of them played the serious game whereas the other half only filled in a questionnaire at pretest and posttest (after two weeks). Participants who had played the game were more aware of risks in their own environment. Furthermore, playing the serious game counterbalanced the decline in self-efficacy as seen in the control condition. In both conditions, participants gathered more information on natural risks. This positive effect in the control condition is probably a side effect of the method used: a reasonably elaborate questionnaire in combination with a delay of two weeks. In all, the results provide a positive basis for further development of the game and to use it on a larger scale to empower citizens to take more responsibility for their own safety.