An Examination of Cross‐cultural Differences in Attitudes Towards Risk: Testing Prospect Theory in the People’s Republic of China

Abstract

A research stream known as prospect theory describes how decision biases lead to results that differ from those predicted by classical utility theory (Kahneman and Tversky, 1979). Prospect theory hypothesizes that individuals will experience potential losses more intensely than potential gains, and will be more risk‐seeking in loss situations, while more risk‐avoiding in gain situations. This study includes 948 participants from the PRC and 318 students from the USA. All of our attempts to replicate these findings in the Peoples’ Republic of China have revealed a different pattern. Chinese subjects consistently demonstrated risk‐seeking preferences, both in gain and loss situations.

Extending prospect theory cross-culturally by examining switching behavior in consumer and business-to-business contexts

“…The study reported here concerns personal attitudes to risk in a financial situation and so more closely replicates Kahneman and Tversky's original prospect theory work, and answers Arke's call more directly, than does Xie and Wang (2003) or Brumagim and Wu (2005). The purpose of the research is to investigate the difference between Eastern and Western cultural groups regarding attitude to risky economic decisions.…”

“…Xie and Wang (2003), report a study of Chinese risk perception and risk choice patterns using a prospect theory framework, but they are more concerned with the underlying motivational factors explaining Chinese risk behaviors than conducting cross-cultural comparisons. Brumagim and Wu (2005) conduct an investigation to identify differences in the pattern of risk aversion, using Kahneman and Tversky's framework, between China and the United States. Their work is not conclusive; this could partly be attributable to the use of a student sample, partly to using an instrument which only requires a dichotomous answer and therefore places limits on statistical analysis or, possibly, because the economic risk involved was not personal, but framed as business risk.…”

The influence of Chinese-Western Bilingualism on Rationality in Decision Making Behavior

“…The results are contract to some previous studies (Brumagim & Xianhua, 2005;Weber & Hsee, 1998) Chinese separately, as the control groups, will enhance the reliability of the results.…”

Behavioral Implications of Risk-Return Associations: An Application of Prospect Theory on CNX NIFTY Companies

“…This is even more pronounced for well-performing Chinese companies based on market benchmarks, i.e., target levels or reference points. Brumagim and Wu (2005) conducted a questionnaire survey on Chinese companies regarding the management's attitude toward risks and found that Chinese management teams show a risk preference.…”