Cross-Cultural Differences In Risk Preference For Investment Alternatives

This paper explores whether there are cross-cultural differences between Chinese and British people in risk preferences in the investment context and possible accounts for the observed differences if any. It also investigates other factors that might alter people's risk appetite. The study showed that the Chinese demonstrated a higher level of risk-seeking than their British counterparts overall. According to the results, gender and Arts/Science orientation are barely related with the different levels of risk preferences whereas the investment principal size and the way information delivered showed statistically significant bearing on them.Several psychological constructs are proposed to account for the observed cultural differences. Based on the cushion effect, the Chinese people, members of a generally acknowledged collectivist culture, are more likely to receive financial help from their in-group members and thus would be"cushioned"if they"fall". But this effect only takes place in economic decisions. Social risks, rather than financial risks are the larger concern for collectivists as opposed to individualists.The man-nature orientation also sheds some light on the risk profiles of persons from different cultural groups. The British people consider themselves as masters of the nature whereas the Chinese people prefer to maintain a harmonious state with it. The more the British want to master over the objective world, the more conservative they get in order to manage various risks in a controllable way. The Chinese, with their holistic view toward the environment, tend to be more flexible with uncertainties and will only exert some degrees of control when the trend of a future event reveals itself.Fate control is another perspective which deserves much attention. Chinese have a fatalistic view toward what happens to them, thus, this belief of almighty arrangement translates into a negative attitude that prevents them from believing in the usefulness of rational thinking; instead, they lean on intuitive and gnosis to judge and make decisions under uncertainties. At the same time, Chinese also think that fate could be predicted and altered to some extent. This seemingly contradictory belief explains the irrational behaviors of some Chinese to count solely on their luck under risky situations.The Chinese are also known for their gambling culture. The long history of gambling and its popularity among the broad public acquaint people with risky choices that might lead to considerable consequences. Thus, their risk-taking propensity could aggregate to a level that stands out from other cultures.Further studies are proposed to examine the empirical relationship between risk preferences and cultural constructs such as cultural dimensions, value orientations and social axioms. Finally, the pragmatic significance of the study is addressed.