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No Risk, No Fun? People Who Take Risks More Satisfied With Their Lives

Date:
September 19, 2005
Source:
University of Bonn
Summary:
Tall people are more prepared to take risks than small people, women are more careful than men, and the willingness to take risks markedly decreases with age: These are the findings arrived at by researchers from the Institute for the Study of Labor (IZA), the University of Bonn and the German Institute for Economic Research (DIW) in Berlin.

Theinterviewees were supposed to imagine that they had won 100,000 eurosin a lottery, part of which they could invest in a bank. There was a50% likelihood that they would thus double the amount invested withintwo years. However, the risk of losing half the money invested was justas great.

'Under these conditions, women invest about 6,000 eurosless than men,' Professor Armin Frank, who researches and teaches atInstitute for the Study of Labor and at the University of Bonn,explains. 'Irrespective of gender, younger people invest a larger sumthan older ones – the annual difference is approximately €350.'Willingness to take risks also depends on body height: for everycentimetre the amount invested rises by €200. Furthermore, educatedparents have children who are more prepared to take risks.

Forthe study, more than 20,000 interviews were evaluated by Professor Falkand his colleagues Dr. Thomas Dohmen, David Huffman and Dr. Uwe Sunde,together with the DIW researchers Dr. Jόrgen Schupp and Professor GertWagner. In it the interviewees were asked to assess their willingnessto take risks on a scale from zero (= not willing to take any risks) toten (= very willing to take risks) and also to take part in theintellectual experiment described above. The results: Smokers are morewilling to take risks than non-smokers. The same is true for people whoprefer to invest their wealth in shares rather than in fixed-interestinvestments. And: People who enjoy taking risks are more content withtheir lives.

Bird in the hand or two in the bush?

Yet theway that interviewees assess themselves and their actual behaviour areoften worlds apart. In order to estimate how reliable the interviewdata were, the researchers invited 450 randomly selected test personsfrom all over the country to play a simple game of chance. This timereal money was at stake: to be precise, €300. This was the amount whichthe participants could win in a lottery – however, the risk that theywould leave empty-handed was just as great. Alternatively they couldaccept a fixed sum instead of taking part in the lottery - €10, €50,€150 or €200. The test persons were then required to say from whatfixed sum onwards they would prefer to bet on the potential €300 (the'birds in the bush') rather than taking the fixed sum (the 'bird in thehand'). The sooner the participants decided in favour of the bird inthe hand, the lower their willingness to take risks was.

'Theexperimental findings tally very well with the interview data,'Professor Falk emphasises. 'Those who claim in the interview to bewilling to take risks also show a high degree of willingness to takerisks in the experiment, where a relatively large sum of money is atstake.' Various statistics also seem to confirm the results: thus thenumber of traffic offences almost parallels the readiness to take risksin the age group concerned – in other words, the younger the driver,the more carelessly they drive.

Public services attract people averse to risk

However,the authors of the study are wary of interpreting their findings. It isprecisely the link between a willingness to take risks and beingsatisfied which is difficult to interpret. 'It's a classic chicken andthe egg problem,' Professor Falk comments. 'Are people who aresatisfied more optimistic because they are satisfied and thus moreready to take risks? Or is someone who is not afraid of risks a personwho takes their life into their own hands and shapes it the way theywant to?'

Incidentally, the willingness to take risks also seemsto influence the choice of occupation. The Bonn results show thatself-employed people are less cautious, whereas people working in thepublic services are more concerned about security.

###

The original article is available on the Internet at ftp://ftp.iza.org/dps/dp1730.pdf


Story Source:

The above story is based on materials provided by University of Bonn. Note: Materials may be edited for content and length.


Cite This Page:

University of Bonn. "No Risk, No Fun? People Who Take Risks More Satisfied With Their Lives." ScienceDaily. ScienceDaily, 19 September 2005. <www.sciencedaily.com/releases/2005/09/050919081143.htm>.
University of Bonn. (2005, September 19). No Risk, No Fun? People Who Take Risks More Satisfied With Their Lives. ScienceDaily. Retrieved August 29, 2014 from www.sciencedaily.com/releases/2005/09/050919081143.htm
University of Bonn. "No Risk, No Fun? People Who Take Risks More Satisfied With Their Lives." ScienceDaily. www.sciencedaily.com/releases/2005/09/050919081143.htm (accessed August 29, 2014).

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