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Cross-Cultural Risk Behavior in Financial Decisions and the Cushion Hypothesis

Cross-Cultural Risk Behavior 3 92 students from a Southern California liberal arts college and two Beijing universities participated in an online questionnaire. Their cultural tendencies (i.e. level of collectivism and perception of family support) and responses to hypothetical investment scenarios were observed. Participants were asked to provide the amount they would invest in each scenario as well as a risk safety rating. The Chinese respondents reported higher cushion and collectivism scores than the Americans. Furthermore, the Chinese sample offered more money for the three riskiest scenarios; they also rated three scenarios safer than the Americans did. The cushion and collectivism scores were not found to predict risk appraisal and amount invested in the scenarios. The results suggest that cultural biases may have an impact on the financial risk-taking behavior of different peoples, but other cultural variables and situational determinants may play an equally influential role in affecting risk perception and investment behavior. Cross-Cultural Risk Behavior 4 We live in a globalized and increasingly complex world, overloaded with advice on how to deal with risk. In essence, almost all decisions involve uncertainty because they pertain to future events, and risk is often the critical unknown variable. To accommodate, we utilize cognition and emotions to calculate risk. From choosing the right graduate school to outlining a wise 401K while working abroad, we face a tremendous diversity in risk. As the world becomes flatter and cities diversify in culture and ethnicity, perceptions and reaction to risk have far-reaching implications for societies that are frequented with visitors from a variety of cultures. The present study investigates the presence of systematic cross-cultural differences in risk perception and preference. This topic is of both theoretical and practical significance; its empirical results build upon studies on interpretation of risk attitudes (Kahneman & Tversky, 1979) and cross-cultural behavior (Triandis, 1993). The findings provide key support for the assertion of a positive and active relationship between certain cultural traits (i.e. family support, close interpersonal relationships, and financial prudence). In the last two decades, cross-cultural psychology and risky decision-making behavior have respectively gained higher profiles in psychology. The rise in popularity of these two topics is unsurprising, given the increase in cross-cultural interactions resulting from the economic and political ascendancy of China and other developing nations. When high-stake negotiations take place between the West and the rest of the world, differing cultural interpretation of risk can have a crucial impact on decision outcomes. However, only a few researchers have conceptualized and examined the intersection of culture and risky decision-making. Douglas and Wildavsky (1982) stressed the important influence of culture on both the perception of risk and its acceptability across discrete Cross-Cultural Risk Behavior 5 individuals. Unfortunately, the bulk of research in cross-cultural perception, acceptance, and reaction to risk has merely assumed national differences in behavior and cultural profiles. For example, when researchers find differences in perceived risk for the same given scenario for a group of Chinese and Americans, they rely on a rather common sense explanation in the discussion. Their rationale is that since China has always been known to be an extremely collectivistic nation-culture, the observed differences can be attributed to the independent variable (nationality-membership). The underlying processes that may explain cross-cultural differences in risk preference, perception, and interpretation are not included in the majority of cross-cultural risk research. Research based on theoretical models that can explain and expand upon current cross-cultural research is needed. Construction of the paradigm should reflect the link between culture and risk. Specifically, there ought to be particular attention on cultural variables such as collectivism and individualism on individuals’ interpretation and evaluation of risk (Triandis, 1993). As a person encounters a potentially risky situation, his attitudes and beliefs—heavily influenced by culture—serve as a guiding anchor for his reactions. To construct a model-based examination of the culture-risk relationship, one must explore the underlying processes and extensive literature that delineate distinct cultural dimensions and risk behavior.