Cross-Cultural Differences in Risk Perception: A Model- Based Approach
OLIN-96-45
Posted: 9 Jul 1997
Date Written: October 1996
Abstract
The present study was designed to assess cross-cultural differences in the perception of financial risks. Students at large universities in Hong Kong, Taiwan, the Netherlands, and the U.S., as well as a group of Taiwanese security analysts rated the riskiness of a set of monetary lotteries. Risk judgments differed with the nationality of the respondents, but not as a function of their occupation (students vs. security analysts). The risk judgments of each individual were modeled by the Conjoint Expected Risk (CER) model (1), which uses a weighted sum of component aspects of a risky prospect to predict its perceived overall riskiness. The CER model provided an excellent fit of the risk judgments of respondents from the four different countries, capturing both cross-cultural similarities in risk judgments (i.e., the functional form by which probability and outcome information was combined) as well as differences (i.e., differences in the weights given to different probability and outcome components). Cross -cultural differences in perceived risk were captured by differences in three of the six parameters of the CER model. Consistent with cultural differences in country uncertainty avoidance (2), CER model parameters of respondents from the two Western countries differed from those of respondents from the two countries with Chinese cultural roots: The risk judgments of respondents from Hong Kong and Taiwan were more sensitive to the magnitude of potential losses and less mitigated by the probability of positive outcomes.
JEL Classification: D84, D81, C91, G19
Suggested Citation: Suggested Citation