The Effect of Uncertainty on Individuals’ Risk Preferences: Experimental Approach | ||
| المجلة العربية للإدارة | ||
| Articles in Press, Accepted Manuscript, Available Online from 16 July 2024 PDF (281.74 K) | ||
| Document Type: بحوث باللغة الإنجلیزیة | ||
| DOI: 10.21608/aja.2024.291739.1652 | ||
| Authors | ||
| Menna Tarek1; Sarah Mansour2; Mona Essam3; Mohamed Rashwan* 4 | ||
| 1Economics Department - Faculty of Business Administration, Economics and Political Science - The British University in Egypt | ||
| 2Economics Department - Faculty of Economics and Political Science - Cairo University | ||
| 3Economics Department - Faculty of Economics and Political Science - Cairo University | ||
| 4Business Department - Faculty of Business Administration, Economics and Political Science - The British University in Egypt | ||
| Abstract | ||
| Risk preference is considered a cornerstone for well-informed decision-making across various domains. It can shed light on decision-making processes, predicting behaviors related to not only patterns of risk preferences, but also behaviors related to consumption and investment decisions. Accordingly, this paper aims to examine the impact of uncertainty, presented by political instability, on individuals’ risk preferences. The study employs the experimental methodology, specifically a lab experiment, to examine its hypotheses. The lab experiment was conducted on March 2022 using a sample of 178 students from The British University in Egypt (BUE) at the university’s Experimental and Behavioral Economics Lab (EBEL). To mentally activate the concept of political instability before starting the game a prime video for Russian-Ukrainian war was randomly introduced for half of the participants. In contrast, the other group was exposed to a neutral picture that triggers nothing about instability. This allowed us to compare behaviors with and without political instability and to examine the influence of political instability on individuals’ risk preferences. We also aimed to find out whether risk preferences affect individuals’ financial decisions such as investment and portfolio allocation. Our results showed that risk preferences have a limited effect on individuals’ financial decisions and that risk preferences are not always stable among individuals as assumed by the standard theories, rather they tend to change not only between individuals but also for everyone depending on the decisions’ context. | ||
| Keywords | ||
| Risk References; Uncertainty; Investment Decisions | ||
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