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

Abstract

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.

The effect of state and trait power on financial risk taking: The mediating and moderating roles of focus on rewards versus threats

“…We observed a positive relationship between power and focus on rewards versus threats, which aligns with the studies conducted, for example, by Anderson and Berdahl (2002), Inesi (2010), and Whitson et al (2013). Additionally, we found a significant and positive correlation between power and risky financial choices, which supports earlier research conducted by Galinsky et al (2014), Sekścińska, Rudzinska‐Wojciechowska, and Jaworska (2022), Sekścińska, Rudzinska‐Wojciechowska, and Kusev (2022), and Sekścińska and Rudzinska‐Wojciechowska (2021). We also replicated the previously demonstrated negative association between power and the perception of financial risk, as shown by Kim and McGill (2011).…”

“…Moreover, the effects of state of power and sense of power are usually consistent (e.g., Anderson & Berdahl, 2002; Anderson & Galinsky, 2006; Cote et al, 2011; for a review, see Rucker et al, 2012). However, some studies have found an interaction effect between state of power and sense of power (Chen et al, 2009; Sekścińska & Rudzinska‐Wojciechowska, 2021; Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022; Strelan et al, 2014). For this reason, it is crucial to consider both components of power.…”

“…Research has shown that people in a state of high power tend to take more risks than people in a state of low power, and this is observed across multiple domains of risk, including financial risk taking (Galinsky et al, 2014; Kim et al, 2018; Maner et al, 2007). Studies show that experimentally inducing state of power results in individuals taking more gambling and investment risks than when lack of power is induced (Galinsky et al, 2014; Sekścińska & Rudzinska‐Wojciechowska, 2021; Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022), not only in the case of individual financial choices but also in the case of corporate ones—a positive link between the power held by a CEO and excessive risk taking on the part of the company has also been demonstrated (Lewellyn & Muller‐Kahle, 2012). Sense of power is also positively linked to the propensity to take investment and gambling risks (Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022; Sekścińska, Rudzinska‐Wojciechowska, & Kusev, 2022).…”

The effect of state and trait power on financial risk-taking: The mediating and moderating roles of optimism

“…A link between greater levels of power measured with the Sense of Power Scale [ 9 ] and riskier gambling choices has also been observed [ 20 , 21 ]. Similarly, experimentally-induced state of having power results in greater investment risks than low power [ 3 , 20 ].…”