1. UROP: cROSS-NATIONAL dIFFERENCES IN fINANCIAL RISK AVERSION
Zheng Xinyi
DEPARTMENT OF ACCOUNTING AND FINANCE

2. Financial risk aversion
What is risk aversion?
Consumers and Investors
Uncertainty
Attempt to Lower the Uncertainty
Example: Bank versus Stock
Financial risk aversion, defined as the maximum amount of uncertainty that someone is willing to accept when making a financial decision, reaches into almost every part of economic and social life. It is the hesitation of a person to agree to a situation with an unknown payoff rather than another situation with a more predictable payoff but possibly lower expected payoff. For example, a risk-averse investor might choose to put their money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have high expected returns, but also involves a chance of losing value.

3. The Factors that affect investor’s financial risk aversion
Increasing levels of risk tolerance have been associated with being:
Male
Older
Single
Professionally Employed with Higher Incomes
More Education
More Financial Knowledge
Increased Economic Expectations
---- Bajtelsmit & Bernasek, 1996; Blume, 1978; Hawley & Fujii, ; McDermott, 1979; Rubin & Paul, 1979; Sung & Hanna, 1996; Baker & Haslem, 1974; Cicchetti & Dubin, 1994; Cohn, Lewellen, Lease, & Schlarbaum, 1975; Masters, Riley, & Chow, 1992; Schooley & Worden, 1996; Shaw, 1996; Zhong & Xiao, 1995
The research on risk aversions was began many years ago. Discriminant analysis results indicated that risk tolerance was associated with being male, older, married, professionally employed with higher incomes, more education, more financial knowledge, and increased economic expectations. Findings suggest that the achievement of financial success can be explained, at least in part, by a combination of someone's personality characteristics and socioeconomic background.

4. Nationality? What Else? American Versus Chinese:
Who you think is more risk-averse?
Who you think is more risk-seeking?
In today’s global perspective, what should we also pay attention to?
It’s obvious that people living in different countries have different financial risk tolerance due to their different cultures.

5. Risk Aversions in Investment, Medical, and Academic decisions
American Investors Are More Risk-averse Than Chinese Investors
“Cushion Hypothesis”
Individualistic Culture Versus Collectivist Culture
---- Weber and Hsee (1998, 1999)
Weber and Hsee (1998, 1999) They believe that Americans are more risky than other Chinese in other behaviors. The only exception is financial investment behavior. They find that Chinese investors are more risk-accepting than investors in Western economies. They purpose the so-called “cushion hypothesis” which argues that in an individualistic culture, people cannot receive financial help through their families as easily as those in a collectivist culture. Accordingly, people in China are able to more easily insure against financial risks, making them more aggressive investors.

6. Survey design
Sample: Undergraduate Business Students (213 valid feedback in total)
China: Ocean University of China, School of Management,
U.S.: University of Minnesota Duluth, Labovitz School of Business and Economics
Survey
Self-assessment:
Five Parts:
Demographical Factors
General Risk Aversion
Financial Risk Aversion
Social Cushion
Scenario Questions

7. pART 1: demographical factors
Age
Gender
Business Knowledge (Especially Financial Knowledge)
Economic Status

8. pART 2: General risk aversion
Enjoyment of the Visceral Sensation of Fear Itself
“Glossophobia” (i.e. speech anxiety)
Initiative
Optimistic
Resolute
Open Position
Impulse
Aggressive

9. pART 3: Financial risk aversion
Similarly, we measured the financial risk version by observing some related factors:
Financial Discretion
Interest in High-risk Financial Activities
Attitude Toward Financial Activities
(i.e., optimistic or pessimistic)
Interest in Financial Markets

10. pART 4: Social Cushion
For all different social cushions, we mainly focus on the cushion from families as it is the subject mainly discussed when referring “cushion” in the previous studies.
Family Bonds
Independence
Financial Help from Family
Psychological Help from Family

11. sCENARIO 1: The price of a lottery

12. sCENARIO 2: STOCK VERSUS RISK-FREE BOND

13. BASIC STATISTICal SUMMARY

14. Correlation

15. Regression modeling WITH INTERACTIONS -- Scenario 1
Pool Sample
Significant Factors:
Gender
Sum24: Financial Risk Aversion
Nationality

16. REGRESSION MODELING with iNTERACTIONS --Scenario 2
Pool Sample
Significant Factors:
Financial Work Experience
Family
Nationality
Interaction of Major and Nationality
Interaction of Financial Work Experience and Nationality
Interaction of Family and Nationality

17. cONCLUSION
Based on the empirical findings, now we know Chinese students are less risk-averse in financial decisions than American students, but social cushion is not so important in the process.
Except the finding above, we also find that:
Regardless of nationality, people who has less risk aversion in their daily activities has less risk aversion in financial activities as well, and at the same time, they receive less social cushion.
The economic status of family has a positive relationship with the social “cushion”.
Social “cushion” has a negative relationship with the risk-aversion (i.e., the more social cushion one has, the more risk-averse he is), but the affect is not very significant, especially compared to other factors (e.g., gender, family status, nationality, etc.).
(The blowout of U.S. student debt to some $1.3 trillion, more than credit card debt, is astonishing. More than 7 million student borrowers are in default and millions are still struggling to repay their loans. ) In China, it’s a very different situation. Student debt is virtually non-existent.
More than a third of all the students interviewed indicated they attended college on a scholarship, and of those, half said they couldn’t have afforded it without that break. That percentage was even higher for students in the United States percent.
Chinese students were the most likely to afford a university without a scholarship percent of the 500 or so students interviewed.

18. Some possible explanations: Tuition and Student Loan in U.S.
As social “cushion” is not a significant variable in our model, what other factors may lead this cross-national difference in financial risk aversion?
Some possible explanations:
Tuition and Student Loan in U.S.
One-child Policy in China
Different mechanisms of colleges (local students versus interstate students)
The Limitations of Self-assessments (subjective)
(The blowout of U.S. student debt to some $1.3 trillion, more than credit card debt, is astonishing. More than 7 million student borrowers are in default and millions are still struggling to repay their loans. ) In China, it’s a very different situation. Student debt is virtually non-existent.
More than a third of all the students interviewed indicated they attended college on a scholarship, and of those, half said they couldn’t have afforded it without that break. That percentage was even higher for students in the United States percent.
Chinese students were the most likely to afford a university without a scholarship percent of the 500 or so students interviewed.

19. FUTURE WORK Sample Bias Sample Size Survey Design
Asking questions properly.
The definition of “social cushion”.
Sample Bias
Gender
U.S Sample (Male-to-Female): 2.07:1
China Sample (Male-to-Female): 0.36:1
The distribution of the economical Statuses of the Family

20. Q&A