What Doesn't Kill You Will Only Make You More Risk‐Loving: Early‐Life Disasters and CEO Behavior

Bernile, Gennaro; Bhagwat, Vineet; Rau, P. Raghavendra

doi:10.1111/jofi.12432

Cited by 640 publications

(234 citation statements)

References 68 publications

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“…Our work also echoes research in corporate finance on the influence of CEO personal characteristics such as personal leverage (Cronqvist, Makhija, and Yonker ()), marital status (Roussanov and Savor ()), military experience (Benmelech and Frydman ()), frugality (Davidson, Dey, and Smith ()), and early life experience (Malmendier, Tate, and Yan () and Bernile, Bhagwat, and Rau ()) on corporate outcomes. While those studies also show that managers' personal characteristics drive risk‐taking behavior in their professional lives, our hedge fund analysis sheds additional light on the types of risk that are taken and the consequences of sensation‐seeking behavior.…”

supporting

confidence: 76%

Sensation Seeking and Hedge Funds

Brown

Ray

et al. 2018

The Journal of Finance

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We show that, motivated by sensation seeking, hedge fund managers who own powerful sports cars take on more investment risk but do not deliver higher returns, resulting in lower Sharpe ratios, information ratios, and alphas. Moreover, sensation‐seeking managers trade more frequently, actively, and unconventionally, and prefer lottery‐like stocks. We show further that some investors are themselves susceptible to sensation seeking and that sensation‐seeking investors fuel the demand for sensation‐seeking managers. While investors perceive sensation seekers to be less competent, they do not fully appreciate the superior investment skills of sensation‐avoiding fund managers.

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confidence: 76%

Sensation Seeking and Hedge Funds

Brown

Ray

et al. 2018

The Journal of Finance

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“…A related literature studies how individual and professional experiences influence a wide array of behaviors, including investment and managerial decision making (e.g., Greenwood and Nagel 2009;Malmendier, Tate, and Yan 2011;Chiang et al 2011;Cole, Paulson, and Shastry 2014;Dittmar and Duchin 2016;Bernile, Bhagwat, and Rau 2017) and political preferences (Giuliano and Spilimbergo 2014;Fuchs-Schudeln and Schundeln 2015). Several papers consider the role of genetics on financial behaviors (Cronqvist andSiegel, 2015 andGrinblatt, Keloharju, andLinnainmaa, 2012).…”

Section: Reservation Institutions and Public Law 280mentioning

confidence: 99%

Growing Up without Finance

Brown¹,

Cookson²,

Heimer

2017

Working Paper (Federal Reserve Bank of Cleveland)

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“…Economists have recently begun examining the impact of negative shocks on risk attitudes (that is, risk tolerance), perceptions, and behaviors, including natural disasters as well as violent conflicts (Callen et al, 2014; Kim and Lee, 2014; Voors et al, 2012), macroeconomic shocks (Malmendier and Nagel, 2011), and early life traumatic experiences (Bernile et al, 2016). This article belongs to a growing subset of this literature that focuses on the effect of natural shocks on risk attitudes, risk perceptions, and risk-taking behavior.…”

Section: Introductionmentioning

confidence: 99%

Natural disasters, social protection, and risk perceptions

et al. 2018

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Natural disasters give rise to loss and damage and may affect subjective expectations about the prevalence and severity of future disasters. These expectations might then in turn shape individuals’ investment behaviors, potentially affecting their incomes in subsequent years. As part of an emerging literature on endogenous preferences, economists have begun studying the consequences that exposure to natural disasters have on risk attitudes, perceptions, and behavior. We add to this field by studying the impact of being struck by the December 2012 Cyclone Evan on Fijian households’ risk attitudes and subjective expectations about the likelihood and severity of natural disasters over the next 20 years. The randomness of the cyclone’s path allows us to estimate the causal effects of exposure on both risk attitudes and risk perceptions. Our results show that being struck by an extreme event substantially changes individuals’ risk perceptions as well as their beliefs about the frequency and magnitude of future shocks. However, we find sharply distinct results for the two ethnicities in our sample, indigenous Fijians and Indo-Fijians; the impact of the natural disaster aligns with previous results in the literature on risk attitudes and risk perceptions for Indo-Fijians, whereas they have little to no impact on those same measures for indigenous Fijians. To provide welfare implications for our results, we compare households’ risk perceptions to climate and hydrological models of future disaster risk, and find that both ethnic groups over-infer the risk of future disasters relative to the model predictions. If such distorted beliefs encourage over-investment in preventative measures at the cost of other productive investments, these biases could have negative welfare impacts. Understanding belief biases and how they vary across social contexts may thus help decision makers design policy instruments to reduce such inefficiencies, particularly in the face of climate change.

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What Doesn't Kill You Will Only Make You More Risk‐Loving: Early‐Life Disasters and CEO Behavior

Cited by 640 publications

References 68 publications

Sensation Seeking and Hedge Funds

Sensation Seeking and Hedge Funds

Growing Up without Finance

Natural disasters, social protection, and risk perceptions

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