Cross-Cultural Differences in Risk Perception: A Model- Based Approach

OLIN-96-45

Posted: 9 Jul 1997

See all articles by Robert N. Bontempo

Robert N. Bontempo

Columbia Business School - International Business

William P. Bottom

Washington University in St. Louis - John M. Olin Business School

Elke U. Weber

Princeton University - Department of Psychology

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

Bontempo, Robert N. and Bottom, William P. and Weber, Elke U., Cross-Cultural Differences in Risk Perception: A Model- Based Approach (October 1996). OLIN-96-45, Available at SSRN: https://ssrn.com/abstract=8412

Robert N. Bontempo (Contact Author)

Columbia Business School - International Business ( email )

3022 Broadway
New York, NY 10027
United States

William P. Bottom

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States
314-935-6351 (Phone)
314-935-6359 (Fax)

HOME PAGE: http://www.olin.wustl.edu/faculty/bottom.html

Elke U. Weber

Princeton University - Department of Psychology

Green Hall
Princeton, NJ 08540
United States

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