People's Financial Choice Depends on their Previous Task Success or Failure

How Power Influences Decision-Makers' Investment Behavior in the Domains of Loss and Gain

We present a study (N = 645) investigating how power alters people’s propensity to take investment risks in a changing decision context of gains and losses and the intensity of their reactions to this experience. The results indicate that people in a state of power made more risky investment decisions than the control group regardless of prior gain or loss outcome, whereas people lacking power took less investment risk than the control group, regardless of previous outcomes. Moreover, people with power and those lacking power differed in their reactions to gains and losses, with the former reacting more to gains and the latter to losses.

That’s not fair! unfair treatment spills over into individual risky financial decisions

Studies indicate that experiencing unfairness may influence subsequent decisions. There is initial evidence that this is also true for gambling decisions made after an experience of unfair treatment in a financial domain. The presented studies test whether this can be extended to other domains of financial risk-taking, such as investments. Moreover, we aim to investigate whether the effects of such experience in one domain generalize to other domains. Three experimental studies were conducted to investigate how unfair treatment coming from varied domains affects individuals’ propensities to make risky investment and gambling choices in subsequent tasks. The experience of being a victim or a beneficiary of unfair treatment in financial and non-financial domains was induced and the propensity to take investment and gambling risks was measured. The results of the experiments indicated that the experience of unfairness influences the propensity to make risky financial choices but the domain in which it is experienced plays an important role. Being a victim of financial unfairness makes people more prone to take investment risk and build riskier investing portfolios with more stocks and fewer bonds than when they are beneficiaries or when they are treated fairly. Moreover, being the beneficiary of unfair treatment in a financial domain makes people less prone to choose a sure option (vs risky) in lottery tasks. The abovementioned relationships are exactly the opposite when the experience of (un)fairness comes from a task in a non-financial context. Specifically, the experience of unfair treatment in a non-financial domain leads people to be less prone to make risky investment choices, and it enhances the propensity to build safer investment portfolios with more bonds and fewer stocks than people from the unfair-beneficiary and fair groups. Furthermore, being the beneficiary of unfair treatment in a non-financial context makes people more prone to choose sure option in lottery task.

Risky financial choices in a gain and loss decision frame – the role of chronic and situationally induced time perspectives

The aim of the research was to explore the relationship between people’s Time Perspectives (TPs) (chronic and induced) and their propensity to take financial risks in gambling tasks with a gain and loss decision frame. The results of the study 1 (N1 = 1093) revealed that a higher chronic Present Hedonistic TP is related to a preference for unsure options in loss and gain frames, while a higher chronic Past Negative TP is related to a preference for sure options in a gain frame of financial choice, but for unsure options in a loss frame. Moreover, higher chronic Future TP is related to unsure option preference in a loss decision frame. The results of the study 2 (N2 = 563) showed that the induced Past Negative TP (in a gain frame) and Present Hedonistic TP (in both decision frames) lead to similar patterns of results to those observed for the chronic TPs.

The Impact of Failures and Successes on Affect and Self-Esteem in Young and Older Adults

Older adults are assumed to change their affect states in reaction to positive and negative stimuli across the life span. However, little is known about the impact of success and failure events on age-related changes in affect states and, particularly, in self-esteem levels. To fill this gap in the literature, in the present study changes in affect and self-esteem in 100 young (19–30 years) and 102 older adults (65–81 years) were assessed after participants experienced success and failure in a demanding cognitive task. Overall, the success-failure manipulation induced changes on affect states and on state self-esteem, not on trait self-esteem. Regarding age differences, older and young adults were affected to the same extent by experiences of successes and failures. Theoretical considerations of the empirical findings are provided in the general discussion.

Future and Present Hedonistic Time Perspectives and the Propensity to Take Investment Risks: The Interplay Between Induced and Chronic Time Perspectives

Willingness to take risk is one of the most important aspects of personal financial decisions, especially those regarding investments. Recent studies show that one's perception of time, specifically the individual level of Present Hedonistic and Future Time Perspectives (TPs), influence risky financial choices. This was demonstrated for both, Time Perspective treated as an individual trait and for experimentally induced Time Perspectives. However, on occasion, people might find themselves under the joint influence of both, chronic and situational Time Perspectives and little is known about interactions between them. The paper focuses on the interplay between chronic and induced levels of Future and Present Hedonistic TPs in explaining people's propensity to take investment risks. An experimental study using a Polish national random-quota sample was conducted. The results showed that situationally induced Future TP lowered the preferred level of portfolio riskiness while situationally induced Present Hedonistic TPs resulted in exactly the opposite effect, and that the higher level of chronic Present Hedonistic TP was linked to higher investment risk preferences. The role of the chronic Present Hedonistic TP was moderated by the situationally induced Future (approaching significance) and Present Hedonistic TPs. The induction of these TPs resulted in reduction of the propensity to take investment risks. The study adds to the literature on psychological factors influencing the propensity to take financial risk. The results are also important for researchers who experimentally manipulate variables that might be also considered as chronic traits. They indicate that whether the manipulation is congruent with one's natural tendencies may have a differential impact on subsequent measures.

How People's Motivational System and Situational Motivation Influence Their Risky Financial Choices

People's preferences for risks have been a subject of interest to researchers in both the economy and psychology fields over the last few years. This has given rise to many important findings about the role of psychological factors that influence people's choices. The presented studies focused on the role of motivational systems (described by Higgins in the Regulatory Focus Theory) in explaining people's financial choices. The main goal was to examine the relationship between people's chronic promotion and prevention motivational system and their propensity to (1) invest, (2) undertake investment risks, and (3) assume financial risks in gambling tasks in both the gain and loss decision-making frame. Moreover, we aimed to investigate how chronic motivational systems confronted with situationally induced promotion and prevention motivation would affect people's propensity to invest and embrace financial risks. Two CAWI studies on a Polish national representative sample (N₁ = 1093; N₂ = 1096) were conducted. The second study consisted of two waves with a 2-week break. The studies provided evidence of higher chronic promotion motivation as well as higher prevention motivation associated with the propensity to invest; however, induced promotion motivation results in a lower propensity to invest compared to induced prevention motivation. Participants with an activated promotion system built more risky portfolios than individuals with an induced prevention system. Moreover, participants with a low chronic promotion system built more risky portfolios than individuals with a high promotion motivation system as long as their prevention system was also low. In terms of gambling decisions in both the gain and loss frame, a higher level of chronic promotion motivation and situationally induced promotion motivation were related to the preference for the non-sure option over the sure one.

Investor Behavior and Flow-through Capability in the US Stock Market

This paper analyzes investor behavior depending on the flow-through capability (FTC) in the US stock market, because investors seek protection from inflation rate changes, and the FTC (a firm's ability to transmit inflation shocks to the prices of its products and services) is a key factor in investment decisions. Our estimates of the FTC of firms listed on the US stock exchange at the sector level are significantly different among industries, and we demonstrate a direct relationship between changes in stock prices (at the sector level) and FTC. These results would be relevant because they have important implications on investor behavior.