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UBC Theses and Dissertations

A package of business related risk measures : development and empirical study Kwong, Alfred Chu 1973

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c.l  A PACKAGE OF BUSINESS RELATED RISK MEASURES: DEVELOPMENT AND EMPIRICAL STUDY  ALFRED CHU KWONG B.Sc.B.A., U n i v e r s i t y o f P h i l i p p i n e s , 1971  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION  i n t h e Department of Commerce and B u s i n e s s  Administration  We a c c e p t t h i s t h e s i s as conforming t o -the required standard  THE UNIVERSITY OF BRITISH COLUMBIA April,  1973  In presenting  this thesis i n p a r t i a l fulfilment of the requirements for  an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t freely available for reference  and  study.  I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may by his representatives.  be granted by the Head of my Department or  It i s understood that copying or publication  of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission.  Department of Commerce & B u s i n e s s A d m i n i s t r a t i o n The University of B r i t i s h Columbia Vancouver 8, Canada  Date  April  1973  i ABSTRACT R i s k t a k i n g p r o p e n s i t y i s d e f i n e d as t h e w i l l i n g n e s s o f an i n d i v i d u a l t o t a k e r i s k s .  A l t h o u g h p r e v i o u s r e s e a r c h has  suggested t h a t t h i s c o n s t r u c t i s m u l t i d i m e n s i o n a l , t h e p r i m a r y purpose o f t h i s t h e s i s i s t o d e v e l o p a package o f measures r e l e v a n t t o one dimension o f r i s k t  "business r i s k .  The package  i n c l u d e s measures adopted and r e v i s e d from ones used p r e v i o u s l y and measures c o n s t r u c t e d f o r t h i s s t u d y . T h i r t y - f i v e Masters Students i n B u s i n e s s A d m i n i s t r a t i o n were a d m i n i s t e r e d t h e f o l l o w i n g package o f m e a s u r e s i  Choice  Dilemma, E x t r e m i t y C o n f i d e n c e i n Judgment, I n - B a s k e t ,  Utility  Items,.Stock  P r i c e Wagers, a P e r s o n a l Record  Q u e s t i o n n a i r e , and  a p e r s o n a l i t y q u e s t i o n n a i r e c o n c e r n i n g I n t e r n a l E x t e r n a l Control  and S e n s a t i o n S e e k i n g . The r e s u l t s o f t h e s t u d y show t h a t some o f t h e i n t e r c o r r e -  l a t i o n s among measures a r e i n s i g n i f i c a n t . lytical  S e v e r a l f a c t o r ana-  methods were t r i e d but t h e e x t r a c t e d f a c t o r s were n e i t h e r  i d e n t i f i a b l e nor expected.  The s t u d y examined t h e r e l a t i o n s h i p  between r i s k t a k i n g and some s e l e c t e d v a r i a b l e s l i k e S a l a r y , amount o f a s s e t , amount o f l i a b i l i t y , y e a r s o f w o r k i n g ence, and number o f dependents.  Choice Dilemma was  experi-  found t o be  a f u n c t i o n o f a g r e a t e r number o f v a r i a b l e s , namely average of  t h e dependents, w o r k i n g y e a r s , s a l a r y , f a c e v a l u e o f i n s u r a n c e  and l i a b i l i t i e s . to  age  E x t r e m i t y c o n f i d e n c e i n judgment i s r e l a t e d  number o f w o r k i n g y e a r s and s a l a r y .  The  In-Basket Memo  ii s c o r e i s r e l a t e d t o I E C o n t r o l , average age o f dependents, w o r k i n g y e a r s and s a l a r y . The t h e s i s has been a b l e t o p i n p o i n t  a r e a s o f weakness  i n t h e items themselves and i n d i c a t e w h i c h measures s h o u l d be subject t o r e v i s i o n or elimination.  I t has a l s o been a b l e t o  narrow down t h e d e f i n i t i o n o f b u s i n e s s r i s k t a k i n g .  In t h i s  r e g a r d , i t has p r o v i d e d i n s i g h t s i n t o what a f i n a l package o f Business-related  r i s k measures s h o u l d  contain.  The s t u d y s u g g e s t s more i n t e r e s t i n g a r e a s t o l o o k a t and s e r v e s as a p i v o t f o r f u t u r e r e s e a r c h o f t h i s k i n d .  ACKNOWLEDGMENT The  Author w i s h e s t o express h i s thanks and g r a t i t u d e t o  the f o l l o w i n g i n d i v i d u a l s , w i t h o u t whose c o o p e r a t i o n t h i s t h e s i s would n o t have been p o s s i b l e i - P r o f . Kenneth R. MacCrimmon f o r p e r m i t t i n g me t o work under h i s g u i d a n c e , g i v i n g me t h e encouragement I needed, p r a c t i c a l l y f i n a n c i n g my l a s t y e a r o f M.B.A. w i t h s t i p e n d s and funds f o r t h e t h e s i s and p r o v i d i n g me w i t h h i s 5 9 6 c l a s s as subjects; - P r o f . Ronald T a y l o r , f o r h i s w i l l i n g n e s s t o s e r v e as a member o f t h e t h e s i s committee, h i s numerous s u g g e s t i o n s  which  b r o u g h t me back t o e a r t h from t h e f i r s t t h e s i s p r o p o s a l , and his  help i n convincing h i s c l a s s t o p a r t i c i p a t e i n the study; - P r o f . John F. B a s s l e r , f o r h e l p i n g me conduct t h e s t o c k  p r i c e wagers and f o r t e l l i n g me e v e r y t h i n g I wanted t o know about U t i l i t y b u t was a f r a i d t o a s k ; - P r o f . C a r l S a r n d a l f o r h i s p a r t i c i p a t i o n as a member o f the t h e s i s committee and h i s i n s i g h t f u l a d v i c e on s t a t i s t i c a l methodology; - Davida Morrow f o r h e r p a t i e n c e i n c o d i n g t h e r e s p o n s e s of the s u b j e c t s ; - U.B.C. Committee on Human S u b j e c t s f o r a p p r o v a l o f t h e various instruments  used;  - Dr. W i l l i a m S t a n b u r y , f o r p r o v i d i n g me w i t h t h e computer money I needed f o r r u n n i n g t h e programs;  iv - Dr. J . W. C. Tomlinson f o r h i s generous h e l p i n a l l o w i n g me t o s o l i c i t v o l u n t e e r s from h i s c l a s s ; - S h i r l e y Freeman f o r t y p i n g t h e f i n a l d r a f t and d e c i p h e r i n g my h a n d w r i t i n g s and - H a z e l Ramsey f o r h e r h e l p w i t h grammar, e d i t i n g , and understanding.  V  TABLE OF CONTENTS Page ABSTRACT  i  ACKNOWLEDGEMENT 1  INTRODUCTION R i s k and U n c e r t a i n t y Components o f R i s k Purpose o f t h e T h e s i s Organization of the Thesis  2  THE ECONOMIC BACKGROUND OF RISK TAKING PROPENSITY MEASUREMENT Introduction U t i l i t y Theory and t h e Measurement o f R i s k Taking E m p i r i c a l S t u d i e s o f U t i l i t y Curves U t i l i t y i Problems and D i f f i c u l t i e s Discussion  3  THE PSYCHOLOGICAL BACKGROUND OF RISK TAKING PROPENSITY MEASUREMENT An Overview Judgmental Measure Dilemma o f Choice Q u e s t i o n n a i r e A c t u a l B e t t i n g Instruments Other P o s s i b i l i t i e s Discussion  4  A PACKAGE OF RT INSTRUMENTS AND RELATED MEASURES The Package In-Basket E x e r c i s e Choice Dilemma Items E x t r e m i t y C o n f i d e n c e i n Judgment Event Occurrence and A c t i v i t y I n t e r e s t P e r s o n a l Records U t i l i t y Type Questions Stock P r i c e Wagers Method o f S c o r i n g t h e Items Discussion  i i i 1 2 6 7 7 9 9 10 12 17 22 24 24 29 31 32 33 35 37 44 44 47 49 49 50 51 52 53 56  vi TABLE OF CONTENTS (Continued) Page 5  58  THE DESIGN OF THE STUDY S u b j e c t s Used Procedure Used I n s t r u c t i o n s t o the Subjects Conclusion  6  AN ANALYSIS OF THE MEASURES AND ITEMS IN THE PACKAGE  68  In-Basket Choice Dilemma U t i l i t y Items S c a l e o f Wager Stock P r i c e Wagers E x t r e m i t y C o n f i d e n c e i n Judgment Event Occurrence and A c t i v i t y I n t e r e s t Discussion 7  OVERALL ANALYSIS OF RISK MEASURES Overview C o r r e l a t i o n M a t r i x o f R i s k Measures Factor Analysis R i s k Taking as a F u n c t i o n o f o t h e r Variables Discussion  8  CONCLUSIONS Recommendation f o r Future  58 58 61 66  69 82 89 98 103 110 120 126 128 128 128 132 140 146 148  Research  150  BIBLIOGRAPHY  153  APPENDIX A - LIST OF RAW DATA  162  APPENDIX B - EXAMPLE OF A SUBJECT PRINTOUT  175  vii LIST OF TABLES Table Number I  Page Memo Scores by Item, Frequency and 75  Median II III IV  Correlation Matrix,  Memo Scores by Item  C o r r e l a t i o n M a t r i x , Minimum Odds by Item Correlation Matrix,  Semantic  VI VII VIII IX  78  Choice Dilemma Item I n t e r c o r r e l a t i o n s  86  Mode Rank, Mean Odd, Median Ranks by Item  88  C o r r e l a t i o n M a t r i x , Compensation U t i l i t y D e v i a t i o n s and Scores C o r r e l a t i o n M a t r i x , Rate o f R e t u r n U t i l i t y Scores C o r r e l a t i o n M a t r i x , Net P r o f i t Utility  X XI XII XIII  Correlations of U t i l i t y  XV XVI XVII XVIII XIX  93 93 93  Scores Items  B u y i n g P r i c e s , Item 4, Frequency Distribution B u y i n g P r i c e s , Item 5, Frequency Distribution C o r r e l a t i o n M a t r i x , S c a l e o f Wager Premiums  XIV  77  Differential  Scores V  77  O v e r a l l Set Rankings D i s t r i b u t i o n  97 101 101 102 105  S e t D, D i s t r i b u t i o n o f Ranks  106  S e t C, D i s t r i b u t i o n o f Ranks C o r r e l a t i o n M a t r i x , Stock P r i c e Wager Scores  106 107  C o n f i d e n c e S c o r e , Item 13, Frequency Distribution  115  C o n f i d e n c e S c o r e , Item 6, Frequency Distribution  116  viii  Table Number XX  LIST OF TABLES  (Continued) Page  C o r r e l a t i o n Matrix, Extremity  Scores  117  C o r r e l a t i o n M a t r i x , C o n f i d e n c e Scores  118  XXII  I E S c a l e w i t h C o r r e l a t i o n s o f Each Item w i t h T o t a l Score  125  XXIII  SS S c a l e w i t h C o r r e l a t i o n s o f Each Item w i t h T o t a l Score  125  XXIV  Spearman Rho's o f R i s k Measures  130  XXV  Oblique R o t a t e d F a c t o r M a t r i c e s Pearson's as Input  XXI  XXVI XXVII XXVIII XXIX  Using  133  Orthogonal F a c t o r M a t r i x and Transf o r m a t i o n M a t r i x (Pearson)  135  Oblique F a c t o r M a t r i c e s , U s i n g Spearman's as Input  138  Orthogonal F a c t o r M a t r i c e s Spearman's  139  Using  P a r t i a l C o r r e l a t i o n s o f R i s k Measures with Selected Variables  145  I X  LIST OF FIGURES Figure Number  Page  2-1  Example o f a U t i l i t y Curve  4-1  R i s k T a k i n g Model i n D e c i s i o n  20 Making  Context  40  6-1  Aggregate Memo S c o r e s , H i s t o g r a m  71  6-2  Minimum Odds S c o r e s , H i s t o g r a m  72  6-3  S.D.  73  6-4  Average Grade A s s i g n e d t o t h e Items,  Scores, Histogram  74  Histogram 6-5  Choice Dilemma Odds S c o r e , H i s t o g r a m  82  6-6  Choice Dilemma Rank, Item 3 , H i s t o g r a m  84  6-7  Choice Dilemma Odd,  6-8  Compensation U t i l i t y S c o r e s , H i s t o g r a m  6-9  Net P r o f i t U t i l i t y S c o r e s , Histogram  6-10  Rate o f Return U t i l i t y  6-11  One S u b j e c t ' s Three U t i l i t y  6-12  S c a l e o f Wager S c o r e s , H i s t o g r a m  99  6-13  Number o f No Responses,  100  6-14  Stock P r i c e Wager S c o r e s , H i s t o g r a m  104  6-15  E x t r e m i t y S c o r e s , Histogram  111  6-16  Confidence Scores, Histogram  112  6-17 6-18 6-19  Chance Assignment D i s t r i b u t i o n , Item 1 3 , H i s t o g r a m E x t r e m i t y S c o r e s , Item 1 3 » H i s t o g r a m Chance Assignments, Item 6 , H i s t o g r a m  6-20  I n t e r n a l C o n t r o l Scores, Histogram  Item 3 , Histogram  Scores, Histogram Curves  Histogram  84 89 90 90 9 5 - 9 6  113 114 115 120  LIST OF FIGURES (Continued) Figure Number  Page  6-21  S e n s a t i o n Seeking S c o r e s , Histogram  121  6-22  Responses f o r Each Item, Histogram  122  6-23  SSS Responses f o r Each Item, H i s t o g r a m  123  To Rolando San L u i s  Perez  My F r a t e r n i t y B r o t h e r Who  Died f o r Peace,  Brotherhood  and  t h e U p s i l o n Sigma P h i  CHAPTER 1 INTRODUCTION  If And and and  you can make a heap o f a l l y o u r w i n n i n g s r i s k i t on one t u r n o f p i t c h and t o s s l o s e and s t a r t a g a i n a t y o u r "beginnings n e v e r b r e a t h e a word about y o u r l o s s . . . Rudyard K i p l i n g , I F  A l t h o u g h we may n o t agree f u n d a m e n t a l l y w i t h K i p l i n g ' s d e f i n i t i o n o f a man i n h i s poem I F , we can be q u i t e s u r e t h a t he's  t a l k i n g about a s p e c i a l k i n d o f m a n — t h e r i s k - t a k e r — a  much admired p r o t o t y p e  t h a t has been p e r c e i v e d  t o be endowed  w i t h a l l the proper s u p e r l a t i v e s of m a s c u l i n i t y — t h e  best o f  courage, d a r i n g and s t r e n g t h o f c h a r a c t e r . Y e t , r i s k - t a k i n g i s n o t r e a l l y a phenomenon—or a t a l e n t common o n l y t o h i s t o r i c a l f i g u r e s who have performed mighty deeds.  Any a c t i v i t y h a v i n g an u n c e r t a i n outcome i n v o l v e s an  element o f r i s k .  Who i s t o s a y t h a t a man c r o s s i n g t h e s t r e e t  o r a c c e p t i n g a b l i n d date i s n o t t a k i n g any r i s k s ?  The funda-  m e n t a l d i f f e r e n c e i s , o f c o u r s e , i n terms o f degree.  Kipling's  man i s d e f i n i t e l y a g r e a t r i s k - t a k e r , w h i l e t h e o r d i n a r y man attempting  t o w i n a t chess may be l e s s o f a r i s k - t a k e r .  Atheists, according  to the Catholic dogmatists, are taking  t h e g r e a t e s t r i s k s — t h e chance o f e t e r n a l damnation. Decisions  i n the r e a l world  involve uncertainty.  In f a c t ,  the d e f i n i t i o n o f d e c i s i o n , according  t o S h a c k l e (1961), imposes  a c o n d i t i o n o f "bounded u n c e r t a i n t y . "  "To have p e r f e c t f o r e s i g h t  2 i s t o r e n d e r a l l d e c i s i o n s empty" ( S h a c k l e , 1961). o f bounded u n c e r t a i n t y may  The  be deduced from S h a c k l e ' s  notion  quote,  " D e c i s i o n i s c h o i c e but not c h o i c e i n f a c e o f p e r f e c t f o r e knowledge, n o r c h o i c e i n f a c e o f complete i g n o r a n c e . " d e f i n i t i o n we have t o accept as we must accept S h a c k l e ' s  This idea  t h a t "the u l t i m a t e n a t u r e o f t h e cosmos i s not one whose h i s t o r y i s p r e d e s t i n a t e ^ o r one  "behaving i n every d e t a i l i n a  manner s e t t l e d and determined from t h e s t a r t . "  ( I t a l s o means  the Maker makes empty d e c i s i o n s w h i l e we m o r t a l s do not because we are not k n o w - i t - a l l — a s an a s i d e t o S h a c k l e . ) "Chance i s but an e x p r e s s i o n o f man's i g n o r a n q e , " once d e c l a r e d .  Laplace  Not b e i n g p e r f e c t ( n e i t h e r p e r f e c t l y i g n o r a n t  n o r p e r f e c t l y k n o w l e d g e a b l e ) , man  i s condemned t o f a c e  risks—  though he t r i e s , w i t h some amount o f e f f o r t , t o c o n t a i n unc e r t a i n t y by i n c r e a s i n g h i s s t o r e o f knowledge o r reduce h i s environment i n t o something t h a t he c o u l d c o n t r o l .  After a l l ,  p r o p h e t s are so r a r e . But t h e n , what i s r i s k ?  And what i s u n c e r t a i n t y ?  When  are t h e two terms s i m i l a r and where l i e s t h e d i f f e r e n c e of t h e two? Without g o i n g i n t o the s e m a n t i c s (and t h e v a r i o u s images t h a t s p r i n g up by m e n t i o n i n g the t e r m s ) , we have t h e f o l l o w i n g d e f i n i t i o n s and e x p l a n a t i o n s from  Science.  R i s k and U n c e r t a i n t y t Doubt and u n c e r t a i n t y seem t o be synonymous i n most p h i l o s o p h i c a l essays.  Jeremy Bentham (Keynes 1921)  once suggested  3 that witnesses should  i n d i c a t e t h e i r s t a t e o f mind on a s c a l e  o f c e r t a i n t y , something l i k e Gibbon's T h e o l o g i c a l Barometer o f doubt (Cohen i 9 6 0 ) .  In K i p l i n g ' s l i n e s , " r i s k " i s " i n one  o f p i t c h and t o s s , " s u g g e s t i n g gambling. two  H e r t z (1964) and  the ' u n c e r t a i n t y ' i n h e r e n t  in  Grayson (i960) i m p l i c i t l y p l a c e  terms as s u b s t i t u t e s f o r one Uncertainty  turn  another.  i s d e f i n e d as t h e s t a t e o f mind t h a t e x i s t s  when more t h a n one  outcome i s judged p o s s i b l e on t h e b a s i s  of  e x i s t i n g i n f o r m a t i o n when an i n d i v i d u a l i s c o n s i d e r i n g the come o f a g i v e n a c t . bility.  the  The  out-  o r i g i n of uncertainty i s unpredicta-  I n t h e case o f an i n v e s t m e n t d e c i s i o n , u n c e r t a i n t y  e x i s t s when an attempt i s b e i n g made t o p r e d i c t t h e outcomes o f accepting  or r e j e c t i n g a given  proposal.  R i s k i s d e f i n e d as "the chanee o f . . . l o s s " i n The c i s e Oxford D i c t i o n a r y .  The  l o s s i s p o s s i b l y an  Con-  opportunity  l o s s , d e f i n e d by S c h l a i f f e r (1959) as "the d i f f e r e n c e between t h e c o s t o r p r o f i t a c t u a l l y r e a l i z e d under t h a t d e c i s i o n  and  t h e c o s t o r p r o f i t w h i c h would have been r e a l i z e d i f the d e c i s i o n had been t h e b e s t one p o s s i b l e f o r t h e event w h i c h a c t u a l l y occurred."  In i n v e s t m e n t d e c i s i o n s , t h i s c o n n o t a t i o n  t h a t a l o s s may  be i n c u r r e d by e i t h e r r e j e c t i n g o r a c c e p t i n g  investment p r o p o s a l — t w o r i s k s being i n c u r r e d t j e c t may  t h a t the  an  pro-  not r e a l i z e the minimum r e t u r n r e q u i r e d by t h e f i r m  and t h a t i f t h e r e t u r n i s l e s s t h a n was may  recognizes  projected  not be o p t i m a l i n t h a t o t h e r a l t e r n a t i v e s o r  would have g r e a t e r b e n e f i t i n a c t u a l f a c t .  the,decision proposals  4 Another d e f i n i t i o n o f r i s k runs as follows»  take the  framework o f a c e r t a i n t y continuum t h a t extends from a "believed absolute  c e r t a i n t y o f t h e f u t u r e outcome o f a p r e s e n t d e c i s i o n  o r a c t where t h e p r o b a b i l i t y d i s t r i b u t i o n c o l l a p s e s i n t o one s i n g l e outcome w i t h a p r o b a b i l i t y o f u n i t y t o t h e o t h e r  extreme  o f complete u n c e r t a i n t y as t o b o t h outcomes and t o t h e p r o b a b i l i t i e s o f t h e s e outcomes.  I n t h e case o f complete u n c e r t a i n t y ,  i t i s p o s s i b l e t h a t d e c i s i o n t h e o r y might d i c t a t e t h e use o f t h e p r i n c i p l e o f i n s u f f i c i e n t reason (equi-probable ture)  s t a t e s o f na-  (Savage* 1954, 4.9) b u t i t i s a l s o p o s s i b l e t h a t we p e r -  m i t s u f f i c i e n t knowledge t o come up w i t h ex-ante s u b j e c t i v e probabilities. Between t h e two extremes o f complete c e r t a i n t y and complete i g n o r a n c e l i e s t h e a r e a i n which we have some b a s i s f o r b e l i e f i n some f i n i t e range o f m u l t i p l e m u t u a l l y  exclusive possible  outcomes w i t h some p r o b a b i l i t y d i s t r i b u t i o n o v e r i t . the case o f r i s k  This i s  ( K n i g h t , 1921), w h i c h c o u l d be termed t h e case  o f s i g n i f i c a n t knowledge o r b e l i e f . The  K n i g h t d i s t i n c t i o n i s t h a t r i s k i s "measurable u n c e r -  t a i n t y " w h i c h may be r e p r e s e n t e d  by n u m e r i c a l p r o b a b i l i t i e s  and t h a t u n c e r t a i n t y i s "unmeasurable u n c e r t a i n t y , where t h e decision-maker i s ignorant o f the s t a t i s t i c a l frequencies o f events r e l e v a n t t o h i s d e c i s i o n , " o r where "a p r i o r i c a l c u l a t i o n s a r e i m p o s s i b l e , o r when an i m p o r t a n t , d e c i s i o n i s c o n c e r n e d " _ (Knight., 1921).  However, some econo-  m i s t s have come t o q u e s t i o n t h e u s e f u l n e s s tion.  once and f o r a l l  o f such a d i s t i n c -  Arrow (1951) s a i d , " I n b r i e f , K n i g h t ' s  uncertainties  5 seem t o have s u r p r i s i n g l y m a n y o f the p r o p e r t i e s p r o b a b i l i t i e s , and  i t i s not  c l e a r as t o how  of  much i s g a i n e d  the d i s t i n c t i o n . ...... A c t u a l l y , h i s u n c e r t a i n t i e s a b o u t . t h e same r e a c t i o n s to  ordinary by  produce  i n i n d i v i d u a l s as o t h e r w r i t e r s  ascribe  risks." S h a c k l e (1955) c o n c l u d e d t h a t i n the r e a l w o r l d , most d e c i -  s i o n s were i n s i t u a t i o n s o f u n c e r t a i n t y .  But,  he not  j e c t e d n u m e r i c a l p r o b a b i l i t i e s f o r r e p r e s e n t i n g the i n s i t u a t i o n s but m a i n t a i n e d t h a t  only reuncertainty  i n s i t u a t i o n s where a l l p o t e n -  t i a l outcomes seemed p e r f e c t l y p o s s i b l e , i t was  impossible to  d i s t i n g u i s h m e a n i n g f u l l y between the r e l a t i v e l i k e l i h o o d s t h e s e outcomes.  T h i s was  f o r w a r d e d as the n o t i o n o f  of  "potential  surprise."  T h i s n o t i o n seems q u e s t i o n a b l e , however, when i t i s  interpreted  t o mean t h a t p e o p l e would be  t o s s i n g a c o i n and  i n d i f f e r e n t between  drawing a p a r t i c u l a r k i n d from a deck o f  cardsI I n h i s i n t r o d u c t i o n t o the  IEA Conference on R i s k  U n c e r t a i n t y , Borch ( I 9 6 8 ) s a i d t h a t the l o n g e r s e r v e s any  u s e f u l purpose."  Knight d i s t i n c t i o n  Ramsey (1926) i m p l i e d  f o r a " r a t i o n a l " man  a l l uncertainties  (We  f u r t h e r i n t o what i s meant by  s h a l l not go any  and  can be reduced t o  "no that  risks.  "rational".)  In t h i s t h e s i s , r i s k i s t r e a t e d as a s i t u a t i o n where •ambiguity*  does not  e x i s t and where a p r o b a b i l i t y d i s t r i b u t i o n —  whether o b j e c t i v e , s u b j e c t i v e ,  or n e c e s s a r y — I s provided  the d e f i n i t i o n s o f t h e s e t e r m s , p l e a s e see  Savage 1 9 5 4 ) .  (for  6 Components o f R i s k R i s k i s composed o f the f o l l o w i n g elements : 1.  Outcomes - e x i s t e n c e o f a t l e a s t two m u t u a l l y e x c l u s i v e outcomes a r i s i n g from an a c t and from events o u t s i d e the a c t .  2.  A c t i o n s - e x i s t e n c e o f a t l e a s t two independent  courses  o f a c t i o n , a t l e a s t one o f w h i c h must be u n c e r t a i n as t o outcome. 3.  Meaningfulness  - e x i s t e n c e o f v a l u e s t h a t the d e c i s i o n  maker a t t a c h e s t o t h e consequences o f t h e outcomes. A l s o t h e amount o f r i s k i n v o l v e d depends upon t h e d e c i s i o n m a k e r * s _ p e r c e p t i o n — i . e . , he must be a b l e t o r e a l i z e t h a t somet h i n g o f v a l u e t o him i s a t s t a k e i n t h e d e c i s i o n p r o c e s s . a d d i t i o n , degrees o f b e l i e f may  In  v a r y among d e c i s i o n - m a k e r s .  Thus, f a c e d w i t h t h e same s i t u a t i o n , i t i s p o s s i b l e t h a t two decision-makers  perceive d i f f e r e n t l e v e l s of r i s k .  this d i f f e r e n t i a l perception, r i s k i s really r i s k t o one i n d i v i d u a l may  not be r i s k t o  Because o f  subjective—i.e.,  another.  In o r d e r t o examine r i s k - t a k i n g among i n d i v i d u a l s , the s i t u a t i o n s i n w h i c h d e c i s i o n s by t h e s e i n d i v i d u a l s a r e t o be made s h o u l d be p e r c e i v e d s i m i l a r l y by t h e s e p e r s o n s — i . e . , t h e v a l u e a t s t a k e and t h e i r degrees o f b e l i e f must be  similar  ( i . e . , p r o v i s i o n o f o b j e c t i v e p r o b a b i l i t i e s ) , and o t h e r v a r i a b l e s must a l s o be m i t i g a t e d i n t h e i r  effects.  7 Purpose o f t h e T h e s i s The p r i m a r y o b j e c t i v e o f t h e t h e s i s i s t o develop a package of r i s k - t a k i n g p r o p e n s i t y measures whose main emphasis i s on •business-economic  r i s k - t a k i n g and monetary r i s k t a k i n g .  The  development w i l l i n v o l v e a r e v i e w o f some o f t h e more well-known measures t h a t e x i s t f o r a s s e s s i n g r i s k t a k i n g a t t i t u d e s ,  subse-  quent r e f i n e m e n t s o r m o d i f i c a t i o n s o f p a s t measures t h a t have been found t o be a p p r o p r i a t e f o r our p u r p o s e , and o r i g i n a l s t r u c t i o n o f measures.  con-  The package o f measures w i l l be g i v e n t o  v o l u n t e e r s from t h e g r a d u a t e programme o f t h e U.B.C. F a c u l t y o f Commerce.  A s t a t i s t i c a l a n a l y s i s o f t h e i r responses w i l l be  presented i n the t h e s i s ,  The r a t i o n a l e b e h i n d t h e package o f  measures w i l l be d i s c u s s e d i n t h e c o n c l u s i o n o f t h i s  thesis.  Organization of the t h e s i s The s t u d y i s d i v i d e d i n t o e i g h t c h a p t e r s .  Chapter 1 i s  an i n t r o d u c t o r y c h a p t e r c o n c e r n i n g t h e d e f i n i t i o n o f r i s k and u n c e r t a i n t y and t h e components o f r i s k .  Chapter 2 d e a l s w i t h  t h e economic f o u n d a t i o n o f r i s k - t a k i n g r e s e a r c h e s w i t h a b r i e f background on some a s p e c t s o f t h e t h e o r i e s o f r i s k b e a r i n g and a s t u d y o f t h e use o f u t i l i t y f u n c t i o n s .  Chapter 3 p r e s e n t s  t h e p s y c h o l o g i c a l background o f t h e r i s k - t a k i n g measures devel o p e d o r adopted by t h i s t h e s i s .  Chapter 4 p r o v i d e s a b r i e f  d e s c r i p t i o n o f t h e package developed  i n t h i s s t u d y and t h e  various a l t e r n a t i v e s considered i n the process.  Chapter 5 d e a l s  w i t h t h e d e s i g n f o r u s i n g t h e package on o u r s e l e c t e d group.  8 Chapter 6 p r e s e n t s t h e a n a l y s e s o f t h e measures and t h e items c o n t a i n e d . i n t h e package.  Chapter ? d i s c u s s e s t h e o v e r a l l  a n a l y s i s o f t h e measures, t h e i r c o r r e l a t i o n s w i t h one a n o t h e r and t h e f a c t o r a n a l y s e s o f t h e s e measures. a summary and c o n c l u s i o n o f t h e s t u d y .  Chapter 8 c o n t a i n s  9 CHAPTER 2 THE ECONOMIC BACKGROUND OF RISK TAKING PROPENSITY MEASUREMENT Introduction T h e o r i e s , both d e s c r i p t i v e and p r e s c r i p t i v e , have "been f o r m u l a t e d by economists uncertainty.  t o e x p l a i n and d i c t a t e b e h a v i o r under  Decision-making  models have been proposed and  c l a i m e d t o be p r e d i c t i v e l y adequate and n o r m a t i v e l y s u p e r i o r . The assumption t h a t i n d i v i d u a l s a c t w i t h s u b j e c t i v e c e r t a i n t y has l o n g ceased t o e x p l a i n t h e e x i s t e n c e o f c e r t a i n observed  phenomena, l i k e i n s u r a n c e  (Arrow, p. 11, 1965).  a w h i l e , economists  i m p l i e d t h a t i n d i v i d u a l s maximized  value  e x p e c t a t i o n ) among c h o i c e s .  (mathematical  For  expected  D. B e r n o u l l i ,  i n I738, i n h i s r e s o l u t i o n o f t h e S t . . P e t e r s b u r g paradox, s a i d the c o n t r a r y ( B e r n o u l l i 1954).  The problem was e q u i v a l e n t t o  the f o l l o w i n g 1 John t o s s e s a c o i n i n t h e a i r r e p e a t e d l y u n t i l i t f a l l s head up. I f t h i s o c c u r s on t h e f i r s t throw, he pays P a u l $1.00; i f t h i s o c c u r s f i r s t on t h e second throw, he pays P a u l $2.00; on t h e t h i r d throw, $4.00; on t h e f o u r t h throw, $8.00 and on the n t h throw, $ 2 . 0 0 l . What i s t h e maximum amount t h a t P a u l s h o u l d pay f o r t h i s game? n -  Its p a r a d o x i c a l nature i s e a s i l y explained 1  The p r o b a b i l i t y  o f a head on t h e f i r s t throw i s 1/2, so t h e expected from t h e f i r s t throw i s 1/2 times $1.00 o r $0.50. b i l i t y o f a f i r s t head on t h e second throw i s 1/4  winning  The proba(1/2 o f t a i l s  on t h e f i r s t throw times 1/2 o f heads on t h e second) so t h e expected w i n n i n g i s 1/4 times $2.00 o r $0.50.  The p r o b a b i l i t y  10 of a f i r s t head on the n t h throw i s ( 1 / 2 ) w i n n i n g s are ( 1 / 2 )  n  times $ 2 . 0 0  n _ 1  n  so t h e expected  , o r $0.50.  Since these  p r o b a b i l i t i e s a r e m u t u a l l y e x c l u s i v e , we add them t o o b t a i n t h e expected w i n n i n g s from t h e game, which a r e $0.50 t i m e s t h e i n f i n i t e p o s s i b l e number o f throws. are  infinite.  The expected w i n n i n g s o f P a u l  But i t would seem i n c o n c e i v a b l e t h a t anyone  would pay an i n f i n i t e amount f o r t h e s a i d game.  In Bernoulli's  s o l u t i o n , t h e d i m i n i s h i n g m a r g i n a l u t i l i t y o f money was t a k e n i n t o account.  A d i s t i n c t i o n was made between m a t h e m a t i c a l ex-  p e c t a t i o n and "moral e x p e c t a t i o n " — " m o r a l e x p e c t a t i o n " d e f i n e d as t h e sum o f t h e p r o d u c t s o f the v a r i o u s advantages a c c r u i n g from v a r i o u s sums o f money t i m e s t h e i r r e s p e c t i v e p r o b a b i l i t i e s . Here was t h e expected u t i l i t y h y p o t h e s i s s t a t e d i n a d i f f e r e n t way.  I n Von Neumann and Morgenstern's  n o u l l i ' s well-known  terms  (1953)» D» BerM  suggestion t o 'solve' the St. Petersburg  Paradox by t h e u s e o f t h e s o - c a l l e d 'moral e x p e c t a t i o n * means d e f i n i n g t h e u t i l i t y n u m e r i c a l l y o r t h e l o g a r i t h m o f one's monetary p o s s e s s i o n s . "  K a r l Menger (193*0 s a i d t h a t i t r e q u i r e d  the boundedness o f t h e u t i l i t y  f u n c t i o n , not t h e mere presence  of r i s k a v e r s i o n , t o r e s o l v e t h e paradox.  Savage (195*0  completed the d e m o n s t r a t i o n o f t h e expected u t i l i t y  later  theorem.  U t i l i t y Theory and t h e Measurement o f R i s k T a k i n g A c c o r d i n g t o F i s h e r (1918), t h e term " u t i l i t y " i s a h e r i t a g e of Bentham and h i s p r i n c i p l e o f morals and l e g i s l a t i o n . concept o f u t i l i t y  The  i n economics may be t r a c e d even t o Adam Smith  i n h i s quote "Value i n use cannot be measured by any known s t a n dard; i t i s d i f f e r e n t l y e s t i m a t e d by d i f f e r e n t p e r s o n s "  (Stigler,  11 1950).  T h i s i d e a o f u t i l i t y , c o n s i d e r e d as a q u a n t i t a t i v e  e x p r e s s i o n o f t h e amount o f s a t i s f a c t i o n d e r i v e d from consumpt i o n , i s t h u s a v e r y b a s i c n o t i o n i n economics. and M a r s h a l l had i n c o r p o r a t e d u t i l i t y  Pareto,  i n t h e i r work  Jevons,  (Stigler,  1950). The  idea that the curvature of a u t i l i t y  function reflects  i t s owner's a t t i t u d e towards r i s k arose out o f Von Neumann and Morgenstern*s monumental work, The Theory o f Games and Economic Behavior  (1953).  I n i t , axioms r e l a t i n g t o u t i l i t y  curves were  d i s c u s s e d ; a l s o , Von Neumann and Morgenstern s t a t e d t h a t t h e u t i l i t y s c a l e , which must be c o n s i s t e n t , d i d n o t have any natural origin. Priedmann and Savage (19^8) f o l l o w e d up on Von Neumann and Morgenstern w i t h t h e i r h y p o t h e s i s o f a consumer u n i t as i f i t maximizes u t i l i t y .  behaving  From t h e o b s e r v a t i o n t h a t people  b o t h buy i n s u r a n c e and l o t t e r y t i c k e t s  ( l o t t e r i e s h a v i n g mul-  t i p l e p r i z e s ) they d e r i v e d a double i n f l e c t e d u t i l i t y f u n c t i o n , convex f o r l o w w e a l t h l e v e l s , concave f o r i n t e r m e d i a t e and convex f o r h i g h e r v a l u e s o f w e a l t h .  levels  Concavity o f the u t i l i t y  f u n c t i o n over an i n t e r v a l i m p l i e s r i s k a v e r s i o n o f t h e d e c i s i o n maker—i.e.,  he would n o t pay as much as t h e l o t t e r y ' s  monetary v a l u e f o r t h e t i c k e t .  Markowitz l a t e r  expected  (1952 b) sug-  g e s t e d t h a t a n o t h e r concave segment be added t o t h e l e f t end o f the u t i l i t y f u n c t i o n . M o s t e l l e r and Nogee (1951) t e s t e d t h e d e s c r i p t i v e v a l i d i t y o f t h e expected u t i l i t y theorem i n e x p e r i m e n t a l s e t t i n g s , and c o n c l u d e d t h a t expected u t i l i t y t h e o r y i s n o t d e s c r i p t i v e  (i.e.,  12 people do not behave as i f t h e y maximize u t i l i t y ) . Pratt  (1964) and Arrow (1965) i n d e p e n d e n t l y f o r m u l a t e d t h e  most s p e c i f i c d e f i n i t i o n t o date o f r i s k a t t i t u d e i n terms o f the shape o f t h e u t i l i t y f u n c t i o n .  They d e f i n e d r ( x ) = a  u " ( x ) / u ' c x ) as a b s o l u t e r i s k a v e r s i o n and r ( x ) = xu r  (x)/u'<5x)  as r e l a t i v e r i s k a v e r s i o n — b o t h measures a r e l o c a l i n t h a t t h e y may  v a r y as x (income, w e a l t h , e t c . ) v a r i e s .  E m p i r i c a l S t u d i e s o f U t i l i t y Curves Grayson's (i960) D e c i s i o n s Under U n c e r t a i n t y i s perhaps  one  of the e a r l i e r a p p l i c a t i o n s of u t i l i t y theory t o s i t u a t i o n s of uncertainty.  Based on Von  Neumann and Morgenstern,  a method o f d e r i v i n g u t i l i t y c u r v e s .  he d e v i s e d  O i l and gas o p e r a t o r s , as  w e l l as members o f t h e i r o r g a n i z a t i o n , were g i v e n a s e r i e s o f hypothetical ventures.  The s u b j e c t s were asked t o e i t h e r  accept  o r r e j e c t a v e n t u r e on the b a s i s o f i n f o r m a t i o n c o n c e r n i n g t h e i n v e s t m e n t , i t s p a y - o f f s and i t s p r o b a b i l i t y o f s u c c e s s . t a b l e o f i n d i f f e r e n c e p r o b a b i l i t i e s was  A  d e r i v e d f o r each i n d i -  vidual.  By s e t t i n g zero $ amount as z e r o i n u t i l i t y and -$10,000  as -1.00  i n u t i l i t y , he c o n s t r u c t e d u t i l i t y curves f o r h i s sub-  jects.  From t h e shape and s l o p e o f t h e s e c u r v e s , he deduced the  r i s k p r e f e r e n c e s o f the i n d i v i d u a l s . Some d i f f i c u l t i e s were encountered One was  the p r o b a b i l i t i e s i n v o l v e d .  w i t h the  experiment.  Some o p e r a t o r s  (Grayson,  i960, pp. 313-314) d i d not always t h i n k o f p r o b a b i l i t i e s as b e i n g o b j e c t i v e . Thus, t h e r e was  t h e danger o f i n t r o d u c i n g a  s u b j e c t i v e " c o r r e c t i o n ' * ( s i m i l a r t o what F e l l n e r (1961) has  13 o b s e r v e d as the s l a n t i n g t e n d e n c y ) i n t o the  probabilities.  However, when t h e p r o b a b i l i t i e s used i n t h e experiment dropped i n t o ranges w i t h w h i c h the o p e r a t o r s had e x p e r i e n c e , t h e s e odds were c r e d i b l e and found t o be s a t i s f a c t o r y .  Thus, the  can o n l y be s a i d t o be v e r y c l o s e a p p r o x i m a t i o n s ' H  u t i l i t y functions.  1  curves  of true  However, Grayson b e l i e v e d t h a t the  subjec-  t i v e p r o b a b i l i t y element was s m a l l and w h i l e t h i s d i d not f i t w e l l w i t h the d e s c r i p t i v e p a r t o f u t i l i t y t h e o r y , i t s t i l l can be v e r y u s e f u l , i n a n o r m a t i v e s e n s e , as a g u i d e t o a c t i o n . His s u g g e s t i o n was t o t r y t o remove any p o s s i b i l i t y o f i n t r o d u c i n g s u b j e c t i v e p r o b a b i l i t i e s by i constant tuate.  (1) h o l d i n g p r o b a b i l i t i e s  (say a t 50-50) and (2) a l l o w i n g the p a y - o f f s t o f l u c The experiment has  i n d i c a t e d t h a t more time s h o u l d be  spent w i t h the s u b j e c t s i n e x p l a i n i n g t h e use o f o b j e c t i v e p r o b a b i l i t i e s and moreover, t h e p a y - o f f s s h o u l d be c o n s t r u c t e d so t h a t t h e y were i n t h e r e a l m o f e x p e r i e n c e  o f the s u b j e c t s .  Swalm (1966) conducted a n o t h e r u t i l i t y s t u d y . u t i l i t y as "a measurable p r e f e r e n c e available in risk situations."  among v a r i o u s  He d e f i n e d choices  R e l a t i v e u t i l i t i e s were measur-  a b l e w h i l e a b s o l u t e u t i l i t i e s were n o t .  Following the p r o p o s i -  t i o n t h a t i f a p e r s o n was i n d i f f e r e n t between two a l t e r n a t i v e s , t h e e x p e c t e d u t i l i t y o f t h e a l t e r n a t i v e was the same, he s e t up a s e r i e s o f q u e s t i o n s , each o f f e r i n g two a l t e r n a t i v e s — o n e c e r t a i n and one u n c e r t a i n ( w i t h 50-50 odds f o r t h e two outcomes). H i s r e s e a r c h approach was as f o l l o w s 1  he i n t r o d u c e d  t h e o r y t o t h e businessmen (one t o two hours p e r man)  utility  and v a r i e d  t h e c o n s t r u c t i o n o f t h e q u e s t i o n s based on t h e e x p e r i e n c e o f  14 the p e r s o n i n v o l v e d .  Because o f the p o s s i b l e c o n f o u n d i n g o f  u t i l i t y and s u b j e c t i v e p r o b a b i l i t i e s , r i s k was l i m i t e d t o 50-50 s i n c e t h e y u n d e r s t o o d t h i s t o be a f l i p o f a c o i n .  The maximum  s i n g l e amount t h a t the s u b j e c t might recommend be spent i n any one y e a r was used as a b a s i s f o r s e t t i n g what Swalm c a l l e d " p l a n n i n g h o r i z o n , " w h i c h was t w i c e t h i s amount.  He b e l i e v e d  t h a t u t i l i t y was a f u n c t i o n o f t h e c o r p o r a t e p l a n n i n g Thus t h e s e r i e s o f q u e s t i o n s based on t h i s " p l a n n i n g  the  horizon.  t h a t ensued i n t h e i n t e r v i e w was  horizon."  The method o f g e t t i n g p o i n t s on the u t i l i t y c u r v e was as followsi  Suppose a p e r s o n s a i d h i s "maximum amount" (mentioned  above) was $20,000. utility  $40,000 would be h i s p l a n n i n g h o r i z o n .  o f 0 d o l l a r s would be s e t a t zero and t h e u t i l i t y o f t h e  p l a n n i n g h o r i z o n s e t a t 1. something l i k e this» tives.  The  The f i r s t q u e s t i o n asked would be  "Suppose you are f a c e d w i t h two a l t e r n a -  One i s t o go i n t o an i n v e s t m e n t where t h e r e i s a 50-50  chance a t g e t t i n g $40,000 (net p r e s e n t v a l u e o f p r o f i t ) and a 50-50 chance a t g e t t i n g z e r o .  The o t h e r a l t e r n a t i v e i s t o u s e  t h e same amount o f money f o r c o s t - s a v i n g investment which w i l l net you some c e r t a i n amount.  How s m a l l w i l l the c e r t a i n amount  have t o be b e f o r e you are i n d i f f e r e n t between t h e two a l t e r n a tives?"  Once the s u b j e c t answered t h i s , he would be g e t t i n g  t h r e e i n i t i a l p o i n t s on the c u r v e .  Suppose X was t h e answer.  Thus we would have t h e f o l l o w i n g c a l c u l a t i o n 1 .50 ( u t i l i t y  o f 40,000) + .50 ( u t i l i t y  .50 (1) + .50(0) = u t i l i t y X. u t i l i t y o f X = .5 ,  o f z e r o ) = u t i l i t y (X)  15 The n e x t q u e s t i o n would be based on t h e f i r s t one where we c o u l d have two a l t e r n a t i v e s i  "one i s an i n v e s t m e n t where t h e r e  i s a 50-50 chance a t g e t t i n g X amount and 50-50 chance a t g e t t i n g $40,000; a n o t h e r i s a c e r t a i n i n v e s t m e n t t h a t w i l l n e t you Y amount."  Once Y was d e t e r m i n e d , t h e c a l c u l a t i o n would be as  follows« .50 ( u t i l . o f $40,000) + .50 ( u t i l i t y o f X) = u t i l i t y (Y) .50 (1) + .50(.5) = u t i l i t y (Y) u t i l i t y o f Y = .75 In t h i s manner a s e r i e s o f q u e s t i o n s was c o n s t r u c t e d .  A  c o n s i s t e n c y check c o u l d be b u i l t i n as a l a s t q u e s t i o n so t h a t i n c o n s i s t e n c y c o u l d be weeded o u t . Swalm's r e s u l t was t h a t sharp s l o p e s were found i n t h e negative quadrants.  By l o o k i n g a t t h e shape o f t h e c u r v e , he  i n f e r r e d whether t h e p e r s o n i s a r i s k - t a k e r o r n o t . Swalm's c o n c l u s i o n s were 1 to  (1) businessmen do n o t attempt  o p t i m i z e t h e expected d o l l a r outcome i n r i s k s i t u a t i o n s i n -  v o l v i n g what t o them a r e l a r g e amounts; (2) C a r d i n a l u t i l i t y theory o f f e r s a reasonable  b a s i s f o r j u d g i n g t h e i n t e r n a l con-  s i s t e n c y o f a s e r i e s o f d e c i s i o n s made by an e x e c u t i v e d e a l i n g w i t h r i s k s and c a n be an a i d i n i n c r e a s i n g t h e c o n s i s t e n c y o f such d e c i s i o n ; (3) t h e t h e o r y o f f e r s a r e l a t i v e l y s i m p l e way o f c l a s s i f y i n g many t y p e s o f i n d u s t r i a l d e c i s i o n makers; and (4) utility  i s a f u n c t i o n o f the i n d i v i d u a l ' s "planning horizon."  S p e t z l e r (1968) i n t e r v i e w e d 36 c o r p o r a t e e x e c u t i v e s by a s k i n g them t o make d e c i s i o n s i n each o f 40 h y p o t h e t i c a l i n vestment s i t u a t i o n s .  The 40 s i t u a t i o n s i n c l u d e d 20 q u e s t i o n s  16 at  e i t h e r o f two i n v e s t m e n t l e v e l s , $3 m i l l i o n and $50  million.  L i k e Grayson, a number o f i n d i f f e r e n c e p r o b a b i l i t i e s were s e cured.  To h e l p t h e i n t e r v i e w e e s i n u n d e r s t a n d i n g p r o b a b i l i t y  s t a t e m e n t s , a r e f e r e n c e c h a r t , w h i c h was a c i r c u l a r c h a r t so designed t h a t a simple t w i s t increased the r e d area w h i l e r e d u c i n g t h e g r e e n a r e a , was u s e d , where t h e r e s p o n d e n t s v i s u a l i z e d the  c h a r t s p i n n i n g r a p i d l y w i t h t h e throw o f a s i n g l e d a r t d e t e r -  m i n i n g t h e outcome.  The n e x t t h i n g S p e t z l e r undertook was t o  f i n d a m a t h e m a t i c a l form f o r u t i l i t y f u n c t i o n s .  Essentially,  he was l o o k i n g f o r a f u n c t i o n whose parameters c o u l d be d e t e r mined by m i n i m i z i n g t h e sum o f t h e s q u a r e s o f t h e d e v i a t i o n s ,  i.e.i [U($0) - (P TJ(X ) + ( 1 - P ) 13 ( X ) ) ] S  S  S  f  2  = minimum,  where U(X) = t h e u t i l i t y o f $X p r e s e n t v a l u e , s s t a n d s f o r s u c c e s s and f s t a n d s f o r f a i l u r e and P  g  stands f o r the proba-  b i l i t y o f s u c c e s s and ( 1 - P ) = p r o b a b i l i t y o f f a i l u r e . S  Seventeen S c a n d i n a v i a n shipowners were used i n a u t i l i t y experiment by Lorange and Norman (1971).  Certainty equivalences  were d e r i v e d f o r each respondent i n a s e r i e s o f 11 independent h y p o t h e t i c a l c h o i c e s , each one i n v o l v i n g a new b u i l d i n g cont r a c t , b u t w i t h v a r y i n g outcomes and/or p r o b a b i l i t i e s o f s u c c e s s . Seven o f t h e 11 c h o i c e s i n v o l v e d 50-50 odds v a r i e t y w h i l e t h e r e s t concerned changing p r o b a b i l i t i e s where t h e p a y - o f f s were held constant.  They responded t o t h e s e 11 h y p o t h e t i c a l c h o i c e s  under two l i q u i d i t y p o s i t i o n s — a s a t i s f a c t o r y and an u n s a t i s factory l i q u i d i t y position. askedi  A l s o , two n o r m a t i v e q u e s t i o n s were  one c o n c e r n i n g t h e t i m e h o r i z o n o f t h e r e s p o n d e n t s *  17 c h a r t e r i n g p o l i c y and  changes over t i m e , and two, whether t h e i r  r i s k a t t i t u d e s would he d i f f e r e n t o r not assuming t h a t t h e y were 15 y e a r s younger.  From the s u b j e c t s ' r e s p o n s e s , Lorange  Norman t r i e d f i t t i n g i.e.,  the u t i l i t y  logarithmic, exponential  and  curves u s i n g s e v e r a l f u n c t i o n s —  and q u a d r a t i c  functions.  As p a r t of t h e package f o r elementary d e c i s i o n a n a l y s i s , a s e r i e s o f programs t h a t enable t h e respondent t o i n t e r a c t w i t h the computer i n o r d e r t o d e r i v e r i s k a v e r s i o n i n d e x has developed by S c h l a i f f e r ( 1 9 7 1 ) . Manecon and  The  been  complete package i s c a l l e d  i s a v a i l a b l e a t a p r i c e from Harvard.  These r i s k -  a v e r s i o n - i n d i c e s programs are t h e r e s u l t s o f S c h l a i f f e r ' s s t u d i e s on u t i l i t y f u n c t i o n s . p r i n t out t h e A r r o w - P r a t t  E s s e n t i a l l y , t h e s e programs  i n d i c e s depending upon how  s p e c i f i e s his r i s k aversion  ( i . e . , whether i t i s  constantly p r o p o r t i o n a l , decreasing, Utility 1  Problems and  etc.).  are easy t o c o n s t r u c t .  approach, b e i n g q u i t e s t r a i g h t f o r w a r d and in constructing u t i l i t y questions. be  Swalm's  s i m p l e , may  be used  Some d i f f i c u l t i e s , however,  encountered.  F i r s t l y , one must be a b l e t o determine what one  constant,  Difficulties  U t i l i t y - t y p e questions  may  the u s e r  is after.  A m i s t a k e one  v a r i o u s t y p e s of e q u i v a l e n t Toda and  c o u l d commit i s t o confound the i n the u t i l i t y  questions.  MacCrimmon, i n an u n p u b l i s h e d paper, c l a s s i f i e d  certainty equivalents valents.  equivalents  as e i t h e r s e l l i n g , g i f t ,  or buying equi-  They b e l i e v e d t h a t , i f the u t i l i t y q u e s t i o n s  were t o  18 be v a l i d as r i s k - t a k i n g measure q u e s t i o n s , one must be c o n s i s t e n t with the equivalents s o u g h t — i . e . ,  the d i f f e r e n t types of equi-  v a l e n t s s h o u l d n o t be mixed up i n t h e same q u e s t i o n n a i r e . For i n s t a n c e , a u t i l i t y - t y p e q u e s t i o n might r u n as f o l l o w s i "Suppose you a r e f a c e d w i t h a s i t u a t i o n where, i f s u c c e s s f u l , you w i l l n e t K d o l l a r s and i f not s u c c e s s f u l , you w i l l n e t X dollars.  The p r o b a b i l i t y o f s u c c e s s i s .50.  you pay i n o r d e r t o g e t t h i s i n v e s t m e n t ? " equivalent.  How much would This i s a buying  Whereas, i f a q u e s t i o n i s as f o l l o w s , "Suppose you  are f a c e d w i t h two a l t e r n a t i v e s — o n e c e r t a i n , one u n c e r t a i n . The u n c e r t a i n a l t e r n a t i v e i s as f o l l o w s — i f you took i t and you were s u c c e s s f u l , you g a i n K d o l l a r s , b u t i f you t o o k i t and f a i l e d , you s t a n d t o l o s e X d o l l a r s . c e s s i s .50.  The p r o b a b i l i t y o f suc-  The second a l t e r n a t i v e i s c e r t a i n — i f you t a k e i t ,  you a r e s u r e t o n e t Y amount.  How s m a l l would Y have t o be be-  f o r e you a r e i n d i f f e r e n t between t h e two a l t e r n a t i v e s ? " T h i s i s a gift  equivalent.  An example o f a s e l l i n g e q u i v a l e n t r u n s as  f o l l o w s 1 "Suppose you have an i n v e s t m e n t i n a v e n t u r e t h a t i s u n c e r t a i n as t o outcomes.  I f t h e v e n t u r e was s u c c e s s f u l , you  g a i n K d o l l a r s but i f i t f a i l e d , you s t a n d t o l o s e X d o l l a r s . Your p o s s i b l e i n v e s t m e n t i s about M d o l l a r s . o f s u c c e s s i s .50.  The p r o b a b i l i t y  I f you c o u l d s e l l t h i s e n t i r e i n v e s t m e n t  t o someone e l s e , how much would you ask f o r i t ? " Toda and MacCrimmon p r e s e n t e d  a mathematic p r o o f t h a t t h e s e  e q u i v a l e n t s were n o t t h e same. Thus, i f we a r e i n t e r e s t e d i n g e t t i n g u t i l i t y r e s p o n s e s under n e t t e r m i n a l w e a l t h s i t u a t i o n s , we must have t h e same n e t  19 t e r m i n a l w e a l t h s i t u a t i o n throughout the q u e s t i o n n a i r e . the  Or, i f  u t i l i t y r e s p o n s e s we seek c o n c e r n i n c r e m e n t s t o w e a l t h , t h e  q u e s t i o n s i n t h e e n t i r e q u e s t i o n n a i r e s h o u l d he concerned w i t h increments t o wealth. The c h a i n i n g method o f e l i c i t i n g e q u i v a l e n t s i s e a s i e r i n c o n s t r u c t i o n terms t h a n t h e i n d i f f e r e n c e p r o b a b i l i t y method used by Grayson and S p e t z l e r .  In the p l o t t i n g of the u t i l i t y curves,  c h a i n i n g can h e l p t h e e x p e r i m e n t e r by making t h e t i m e f o r p l o t t i n g shorter.  We s h a l l i l l u s t r a t e here how c h a i n i n g works.  Suppose  we have determined t h e p l a n n i n g h o r i z o n as X and we use 5 0 - 5 0 for  p r o b a b i l i t y assignment, t h e s e r i e s o f q u e s t i o n s may be d i a -  grammed t h i s way t Question 11  Y t o be determined ( I f we l e t u ( X ) = u t i l l a n d u(0) = 0 u t i l , u(Y) = .5)  Question 2j  Z t o be determined (thus, u(Z) =  Question 3 i  R t o be d e t e r m i n e d ( t h u s , u(R) =  .5  Question k i .5  .75)  .25)  (0)  t o be determined (Z)  (thus, u(V) =  .5)  20 Question 4 i s supposed t o be a c o n s i s t e n c y check q u e s t i o n . I f t h e p e r s o n f o l l o w s t h e Von-Neumann-Morgenstera axioms, he ought t o have V = Y.  B e f o r e we go i n t o t h e c o n s i s t e n c y i s s u e ,  we w i l l p r e s e n t here t h e p l o t o f t h e sample e q u i v a l e n t s . FIGURE 2.1 >  Example o f a U t i l i t y  Curve  P r o b a b i l i t y l e a r n i n g i s perhaps t h e g r e a t e s t encountered by p a s t r e s e a r c h e r s The  difficulty  (Grayson, S p e t z l e r , e t c . ) .  f a i l u r e t o see t h e p r o b a b i l i t i e s as o b j e c t i v e ones causes  " i n c o r r e c t " o r untrue responses.  Spetzler*s reference  chart  aims a t g i v i n g t h e s u b j e c t s a f e e l o f what t h e u n d e r l y i n g b a b i l i t i e s mean.  pro-  Even Swalm, who thought t h a t h i s 50-50 was  a b l e t o remove a l l s u b j e c t i v e p e r c e p t i o n , had some s u b j e c t s who s a i d 50-50 t o them was n o t r e a l .  Also, the pay-offs  a r e o f t e n summarized p a y - o f f s i n monetary terms.  involved  I t i s possible  t h a t t h e s u b j e c t s might f a i l t o g r a s p t h e "consequences" o f t h e p a y - o f f s , because some o f them t h i n k i n p e r c e n t a g e t e r m s .  Net  P r e s e n t V a l u e i s o f t e n used as an e x p r e s s i o n o f t h e p a y - o f f s  21 but t h i s i s a condensed not r e a d i l y g r a s p .  f i g u r e whose meaning some s u b j e c t s may  Usually, investment-type questions are  employed b u t t h e q u e s t i o n as t o how t h e p a y - o f f s s h o u l d be p h r a s e d i s sometimes n o t asked o f t h e s u b j e c t s . of  the u t i l i t y  The o b j e c t i v e  q u e s t i o n s i s t o make t h e s i t u a t i o n s as r e a l as  p o s s i b l e i n order t o e l i c i t responses t h a t a r e meaningful.  How-^  e v e r , because o f t h e s i m p l i c i t y o f t h e p a y - o f f s , r e a l i s m i s s a c rificed.  Net p r e s e n t v a l u e i n c l u d e s i n i t s c a l c u l a t i o n t h e d i s -  c o u n t i n g r a t e b u t t h e s u b j e c t s sometimes have d i f f i c u l t y  evalu-  a t i n g t h e c o n s t r a i n t s t h a t t h e investment (and commitment) might mean t o f u t u r e o p p o r t u n i t i e s .  The e x p e r i m e n t e r wants t h e ques-  t i o n s t o be responded t o as i f t h e y were "independent" q u e s t i o n s i.e.,  t h e response t o Q u e s t i o n 1 s h o u l d n o t i n any way be t a k e n  i n t o account by t h e respondent i n a n s w e r i n g subsequent q u e s t i o n s . A l s o , t h e r e i s t h e danger o f r e s p o n d e n t s g i v i n g expected v a l u e as c e r t a i n t y e q u i v a l e n t s (even i f , i n r e a l i t y , t h e y do not u s e e x p e c t e d v a l u e as a d e c i s i o n r u l e ) .  M o t i v a t i o n a l elements t h u s  must be i n c o r p o r a t e d t o g e t h e r w i t h t h e q u e s t i o n s so t h a t t h e r e s p o n s e s g i v e n a r e " t r u e " r e s p o n s e s r a t h e r t h a n what t h e r e s pondents t h i n k t h e y ought t o g i v e . As t o c o n s i s t e n c y , Grayson, S p e t z l e r , and Swalm found t h a t t h e r e were i n f a c t answers t h a t d i d n o t conform t o t h e axioms of  Von Neumann and Morgenstern. The responses by t h e s u b j e c t s t o t h e c o n s i s t e n c y check  q u e s t i o n s h o u l d t h u s be examined. a s p e c i f i e d range  I f t h e responses are o u t s i d e  ( i . e . , t h e range b e i n g +10$ o f t h e amounts on  w h i c h t h e check i s a p p l i e d ) , we must c o n c l u d e t h a t t h e axioms  22  are n o t f o l l o w e d and t h e s u b j e c t s ' r e s p o n s e s a r e c o n s i d e r e d dubious. The A r r o w - P r a t t  index o f r i s k a v e r s i o n assumes t h a t one  c o u l d d e r i v e a u t i l i t y f u n c t i o n f o r each u t i l i t y c u r v e . t h e form o f t h e f u n c t i o n i s d i f f i c u l t t o d e t e r m i n e .  However,  Researchers  i n t h e p a s t , l i k e S p e t z l e r , Norman and Lorange, suggested what the form o f t h e u t i l i t y  f u n c t i o n was.  The v a r i o u s f u n c t i o n a l  forms suggested were d i f f e r e n t from one r e s e a r c h e r t o t h e n e x t ( i . e . , S p e t z l e r ' s f u n c t i o n s were n o t t h e same as t h o s e o f Norman and  Lorange).  A l s o , i f t h e f u n c t i o n s a r e t o be d e t e r m i n e d , much  curve-fitting  work would have t o be done and t h e parameters o f  the f u n c t i o n s would a l s o have t o be d e r i v e d .  This i s d e f i n i t e l y  a d i f f i c u l t a c t i v i t y t o undertake. A s i m p l e r way, from an e x p e r i m e n t e r ' s c o m p u t a t i o n a l  point  o f v i e w , i s t o measure t h e h o r i z o n t a l d e v i a t i o n s from t h e r i s k neutral line Bassler  (see F i g u r e 2 . 1 ) and average t h e s e d e v i a t i o n s .  (1972)  employed t h i s method f o r computing r i s k  aversion  indices. Discussion U t i l i t y t h e o r y , as we have s a i d , has i t s p o s s i b i l i t i e s i n measuring an i n d i v i d u a l ' s r i s k t a k i n g a t t i t u d e .  Difficulties  w i t h o p e r a t i o n a l u t i l i t y measurement have been p o i n t e d o u t . Normatively,  u t i l i t y t h e o r y o f f e r s t h e economic man an approach  i n making d e c i s i o n s under u n c e r t a i n t y .  A corporate r i s k p o l i c y  can be d e r i v e d by t h e a p p l i c a t i o n o f u t i l i t y the u t i l i t y  (Spetzler).  With  f u n c t i o n s o f t h e key managers p l o t t e d o u t , d e l e g a t i o n  23 of  d e c i s i o n - m a k i n g can be f a c i l i t a t e d  (Grayson).  Howard (1968)  l i k e w i s e suggested the c o n s t r u c t i o n o f v a r i o u s u t i l i t y  functions  based on independent v a r i a b l e s l i k e market s h a r e s , p r o f i t , e t c . to be i n c o r p o r a t e d i n s t a t i s t i c a l d e c i s i o n t h e o r y t o maximize utility. Another economic-based the assessment  i n s t r u m e n t t h a t c o u l d be used f o r  of r i s k - t a k i n g p r o p e n s i t y i s the Indifference^  Curve approach.  MacCrimmon and Toda (1969) g i v e a method o f  p l o t t i n g the i n d i v i d u a l ' s i n d i f f e r e n c e curves i n s i t u a t i o n s of trade-offs  (between two c o m m o d i t i e s ) .  The s l o p e o f t h e i n d i f f e r -  ence c u r v e a t any p o i n t shows t h e m a r g i n a l r a t e a t which a t t r i b u t e i s s u b s t i t u t e d f o r another.  one  A polynomial u t i l i t y  f u n c t i o n o f each o b j e c t c o n s i d e r e d has been d e r i v e d from t h e i n d i f f e r e n c e c u r v e s o b t a i n e d by MacCrimmon and Toda. questions concerning u t i l i t y  f u n c t i o n s may  Thus,  a l s o be r a i s e d  a g a i n s t t h e i n d i f f e r e n c e c u r v e method, which can be c o n s i d e r e d t h e i n d i r e c t way  of a r r i v i n g at u t i l i t y f u n c t i o n s .  Discussion  on t h e methods o f d e t e r m i n i n g i n d i f f e r e n c e c u r v e s and t h e d e r i v a t i o n o f u t i l i t y f u n c t i o n s from t h e s e w i l l not be  undertaken  here. However, a l t e r n a t i v e s t o r i s k - t a k i n g measurement a r e conf i n e d not o n l y t o economics but may of p s y c h o l o g y .  be extended t o t h e  field  In t h e n e x t c h a p t e r , we w i l l p r e s e n t some o f  the p s y c h o l o g i c a l measures t h a t have been found to. have v a l i d i t y for  our p u r p o s e s .  24  - CHAPTER 3 THE PSYCHOLOGICAL BACKGROUND OF RISK TAKING PROPENSITY MEASUREMENT An  Overview R i s k t a k i n g p r o p e n s i t y has "been h y p o t h e s i z e d t o be a  general personality disposition.  Many d e v i c e s have been p r o -  posed by p s y c h o l o g i s t s f o r u s e i n i t s assessment.  However,  p r e v i o u s s t u d i e s r e v e a l e d t h a t t h e r e was a c o n s i d e r a b l e l a c k o f agreement among measures t h a t were supposed t o be i n v e s t i g a t i n g the same g e n e r a l c h a r a c t e r i s t i c .  The c o n t r o v e r s y  surrounding  a l l t h e s e r i s k - t a k i n g p r o p e n s i t y measures s u r f a c e s p a r t i a l l y with the following questions i  (1) I s r i s k t a k i n g p r o p e n s i t y a  g e n e r a l p e r s o n a l i t y d i s p o s i t i o n ? ( 2 ) What a r e t h e p e r s o n a l i t y correlates of risk-taking attitudes? dimensions  ( 3 ) Can we i d e n t i f y t h e  o f the broader c o n s t r u c t c a l l e d r i s k - t a k i n g ?  (4)  How r e a s o n a b l e a r e t h e s e measures ( i . e . i n terms o f f a c e v a l i d i t y ) ? and (5) What about t h e convergent  v a l i d i t y o f these  instruments? „ Sloyic  (1962) attempted  t o p r o v i d e e v i d e n c e about t h e con-  v e r g e n t v a l i d i t y by d e t e r m i n i n g whether i n t e r c o r r e l a t i o n s among s e v e r a l r i s k - t a k i n g measures were s i g n i f i c a n t l y d i f f e r e n t from z e r o and s u f f i c i e n t l y l a r g e t o encourage f u r t h e r e x a m i n a t i o n . E i g h t y - t w o s u b j e c t s were a d m i n i s t e r e d a b a t t e r y o f Response S e t (Dot E s t i m a t i o n T e s t , Word Meanings Test f o r Category Test R i s k f o r gambling  on g u e s s e s ) , Q u e s t i o n n a i r e  ence I n v e n t o r y o f Torrance  Width and  (Life Experi-  and Z i l l e r and a Job P r e f e r e n c e  25 Inventory), experimental  gambling (Bet P r e f e r e n c e  Test and S e l f  C r e d i t i n g T e s t ) and p e e r r a t i n g measures o f r i s k t a k i n g tendencies,  The i n t e r c o r r e l a t i o n s among t h e s e measures were g e n e r a l l y  not s i g n i f i c a n t  ( r a n g i n g from - . 3 5 t o . 3 4 ) .  Bassler (1972), i n his doctoral dissertation tested various measures ( e . g . , v a r i a n c e , n e g a t i v e s e m i - v a r i a n c e ,  skewness, K t s r -  t o s i s , e t c . ) d e r i v e d from an e x e r c i s e on s t o c k , d e c i s i o n s i t u a t i o n s ( c a l l e d t h e Investment Experiment as a Group) i n a c o n s i s t e n c y check w i t h t h e c h o i c e (1964)  dilemma q u e s t i o n n a i r e o f Kogan and W a l l a c h  a n d u t i l i t y functions,  The h i g h e s t c o r r e l a t i o n he found  e x i s t e d o n l y between two s i t u a t i o n s w h i c h had money p a y - o f f s (p <.005 and r = - . 5 5 ) . Kogan and W a l l a c h , f o l l o w i n g measuresi  i n t h e i r 19.64 s t u d y , i n t e r c o r r e l a t e d t h e  Choice Dilemmas.Pure Chance B e t t i n g ( A c t u a l )  S i t u a t i o n s ; Brim and H o f f E x t r e m i t y i n Judgment and  Confidence;  C a t e g o r y Width; Choices among d i f f e r e n t l o t t e r i e s based on motor s k i l l t a s k s w i t h monetary p a y - o f f s ; Number-guessing games w i t h monetary p a y - o f f s and i n f o r m a t i o n a v a i l a b l e f o r p u r c h a s e ; Problem-Solving  Tasks w i t h up t o . e i g h t c l u e s a v a i l a b l e , each a t  t h e c o s t o f a decrement i n . t h e monetary reward f o r a c o r r e c t s o l u t i o n ; and a f i n a l a l l o r n o t h i n g chance l o t t e r y .  They  found no e v i d e n c e o f g e n e r a l i t y based on t h e i r r e s u l t s , i . e . , no p a t t e r n o f h i g h c o r r e l a t i o n s among measures.  The p u b l i s h e d  r e s u l t s o f o t h e r s i m i l a r s t u d i e s (Maehr and Videbeck  (1968),  W e i n s t e i n and M a r t i n ( 1 9 6 9 ) ) i n d i c a t e d poor convergent v a l i d i t y . A l d e r f e r and Bierman ( 1 9 7 0 ) , u s i n g a t h r e e outcome l o t t e r y , showed t h a t o p p o s i t e p a t t e r n s o f r e l a t i o n s h i p e x i s t e d between  26 c h o i c e dilemma and i n v e s t m e n t r i s k - t a k i n g .  S l o v i c (1971) found  t h a t under two d i f f e r e n t e v a l u a t i o n modes ( p r e f e r e n c e p r i c e ) , t h e r e was.a l a c k o f c o n s i s t e n c y  or selling  "between t h e two gambling  measures employed. Slovic  (1964) s a i d t h a t "What i s needed, t h e r e f o r e , i s a  systematic i n v e s t i g a t i o n o f the factors responsible l a c k o f convergent v a l i d i t y . "  The e x p l a n a t i o n  c o u l d be found i n t h e f o l l o w i n g i  for this  for t h i s lack  multidimensionality  of risk.  s u b j e c t i v i t y o f r i s k , and e m o t i o n a l a r o u s a l i n v o l v e d i n r i s k . Kogan and W a l l a c h (1967) summarized t h e v a r i o u s  determin-  a n t s o f r i s k t a k i n g , an i n t e r e s t i n g p a r t b e i n g t h e s i t u a t i o n a l i n f l u e n c e s on r i s k t a k i n g , w h i c h can be i n t e r p r e t e d t o agree with Slovic*s multidimensionality-subjectivity issue. Also, several personality variables are l i k e l y t o affect one's e m o t i o n a l a r o u s a l and t h u s i n f l u e n c e r i s k - t a k i n g . The f o l l o w i n g have been m a i n t a i n e d t o be o f m a j o r . i m p o r t a n c e t (1)  I-E C o n t r o l (from R o t t e r 1966) (e.g., L i v e r a n t and S c o d e l I 9 6 0 , L e f c o u r t and S t e f f y 1970).  (2)  D e f e n s i v e n e s s ( u s i n g t h e Marlowe-Crowne S o c i a l D e s i r a b i l i t y S c a l e ) (e.g., Martuza 1970).  (3)  F i e l d Dependence-Independence (Kogan and W a l l a c h 1964)  (4)  Need Achievement-Fear o f F a i l u r e (as measured by TAT o r the "French Test f o r I n s i g h t " ) (Atkinson, B a s t i a n , E a r l and L i t w i n 1960s S c o d e l , Minas and Ratoosh 1959; M c C l e l l a n d 1958; M o r r i s 1 9 6 6 ; . W e i n s t e i n 1969).  (5)  Test A n x i e t y  (6)  I n t e l l i g e n c e and S k i l l (Kogan and W a l l a c h 1964; J e l l i s o n and R i s k i n d 1970).  (7)  Autonomy ( u s i n g the EPPS)  (Kogan and W a l l a c h 1964).  (Cameron and Myers 1966).*  2? (8)  S e n s a t i o n Seeking ( o f Zuckermann, e t a l . 1964) (suggested by S l o v i c ) .  (9)  S u s p i c i o u s n e s s v s . T r u s t (Shure and Meeker 1967).  (10)  Cautiousness (using  Other t y p e s o f s t u d i e s a l i t y correlates  Gordon P I S c a l e ) (Phelan 1962).  i n the i n v e s t i g a t i o n of the person-  o f r i s k - t a k i n g a r e i n e x i s t e n c e (e.g., Rim 1964;  Cameron and Myers 1966). The  S e n s a t i o n S e e k i n g , mentioned above, i s what p s y c h o l o -  g i s t s r e f e r r e d t o as t h e c o n s t r u c t " o p t i m a l s t i m u l a t i o n  level."  One s c h o o l o f t h o u g h t proposes t h a t t h e i n d i v i d u a l i s c o n s t a n t l y s e e k i n g some o p t i m a l l e v e l o f i n t e r n a l e x c i t e m e n t . courted in.order  Risk i s  t o r a i s e t h e amount o f e x c i t a t i o n w h e n . i t drops  below t h e o p t i m a l l e v e l and a v o i d e d when t h e e x c i t a t i o n l e v e l becomes e x c e s s i v e .  Thus, t h e i n i t i a l h y p o t h e s i s i s t h a t a p e r -  son w i t h a h i g h e r s e n s a t i o n s e e k i n g tendency would e x h i b i t higher risk-taking. Internal-External  Control  r e f e r s t o "the e x t e n t t o w h i c h  an i n d i v i d u a l i n a s p e c i f i c s i t u a t i o n o r c l a s s o f s i t u a t i o n s believes  t h a t what has happened, i s happening o r w i l l happen i s  d i r e c t l y r e l a t e d t o what he has done."  Liverant  and S c o d e l  (I960) demonstrated a r e l a t i o n s h i p between r i s k - t a k i n g and I-E where t h e r i s k s i t u a t i o n i n v o l v e d assertion that  gambling c h o i c e s , w i t h t h e i r  "a penchant f o r ' i n t e r n a l c o n t r o l e v i d e n t l y  t r i b u t e d t o l o w e r l e v e l s o f r i s k - t a k i n g and t o l e s s i n the choice of decision  variability  a l t e r n a t i v e s where t h e s e t t i n g i n -  v o l v e d c h a n c e — i n o t h e r words, when i n f a c t no i n t e r n a l was  possible."  con-  control  27&  Both o f t h e s e measures a r e L i k e r t - t y p e ( t o remove s o c i a l d e s i r a b i l i t y b i a s ) measures, each i t e m c o n s i s t i n g o f p a i r o f alternatives f o r the subject to select.  The s c o r i n g method  employed f o r t h e s e measures i s s i m p l i f i e d and " o b j e c t i v e " ( i . e . , t h e r e i s no requirement  f o r v a l i d a t e d judges t o r e v i e w t h e r e s -  ponses, as i n TAT). Atkinson  (1957) was  tancy theory.  one o f t h o s e who p i o n e e r e d t h e expec-  A t k i n s o n e t a l . (I960) found support  for their  model o f R e s u l t a n t M o t i v a t i o n w i t h t h e s h u f f l e b o a r d game (as a r i s k device).  The r e s u l t a n t m o t i v a t i o n f u n c t i o n d e r i v e d from  e m p i r i c a l t e s t i n g demonstrated t h a t a p e r s o n w i t h h i g h Mg ( M o t i v a t i o n t o succeed) p r e f e r r e d moderate r i s k w h i l e a p e r s o n w i t h h i g h Mf ( m o t i v a t i o n t o a v o i d f a i l u r e ) p r e f e r r e d r i s k y o r extremely ever, Weinstein  extremely  conservative alternatives or choices.  How-  (1969), u s i n g t h e French Test o f I n s i g h t (a  t e s t f o r need achievement) and o t h e r (n Ach) need Achievement tests  (e.g., TAT) t r i e d t o determine t h e r e l a t i o n s h i p between  l e v e l o f need achievement and 12 measures o f r i s k  preferences  and found low n o n - s i g n i f i c a n t c o r r e l a t i o n among t r a d i t i o n a l n Ach measures and l o w convergence a c r o s s r i s k  preferences.  From t h e numerous s t u d i e s r e p o r t e d i n t h e l i t e r a t u r e , i t seems t h a t r e s e a r c h e s  into the personality correlates of r i s k -  t a k i n g have n o t been f r u i t f u l .  Two t h i n g s may have been wrong  w i t h t h e studies» (1)  t h e measurement o f t h e o t h e r p e r s o n a l i t y v a r i a b l e s has not been a c c u r a t e because o f t h e n a t u r e o f t h e i n s t r u m e n t s used;  28 (2)  the r i s k - t a k i n g measurement has whose c o n s t r u c t i o n  has  been based on  instrument(s)  been f a u l t y .  C r i t i c i s m of t h e p a s t r e s e a r c h e s i n t o r i s k - t a k i n g i s d i rected  towards two  major  areasi  (1) the  instrument i t s e l f i s  w e a k — i n terms o f the  i n a b i l i t y to d i s t i n g u i s h f a c t o r s , percep-  tual differences,  (2) the way  and  ducted- - f a i l u r e to e l i m i n a t e  the s t u d i e s  variables  have been con-  that tend to  invalidate  the r e s u l t s (boredom-inducing e f f e c t s ) ; i n a b i l i t y t o s e p a r a t e chance and  s k i l l e f f e c t s , l a c k o f m e a n i n g f u l n e s s o f the  quences o f the d e c i s i o n s  made i n response t o the measures,  i n s i g n i f i c a n t v a l u e of p o t e n t i a l l o s s ations,  f o r example).  individuals  and  ( d i m e - n i c k e l chance s i t u -  Also, d i f f e r e n t procedures designed to  a s s e s s t h e same a t t i t u d e s may o f the  conse-  (Cook and  l e a d t o q u i t e d i f f e r e n t placement S e l l t i z 1964).  Moreover, the  asser-  t i o n o f non-convergence o f the v a r i o u s measures i s somewhat weakened by the q u e s t i o n a b l e measures o f r i s k - t a k i n g used  (eig.,  S l o v i c 1962). Search i s always a s e r i e s o f g e n e r a t i o n and Criteria  must be s e t up by w h i c h we  elimination.  s e l e c t our i n s t r u m e n t s .  Chapter 4, we w i l l p r e s e n t t h e s e c r i t e r i a t o g e t h e r w i t h description  of the  In  the  f i n a l package.  I n s t r u m e n t s c o n s i d e r e d weak (by our s e t o f c r i t e r i a ) w i l l be o m i t t e d from f u r t h e r c o n s i d e r a t i o n .  For i n s t a n c e ,  the i n -  struments t h a t have been c o n s t r u c t e d based on e x a m i n a t i o n quest i o n s . f o r h i g h s c h o o l s t u d e n t s ( l a b e l l e d as the  "Gambling  by S l o v i c ) where a gambling i n d e x ( S w i n e f o r d 1938» 1941) u s e d as a measure o f r i s k - t a k i n g tendency are c l e a r l y out  Set" is of  29 the q u e s t i o n f o r business r i s k - t a k i n g p r o p e n s i t y r e s e a r c h . Moreover, i n s t r u m e n t s w i t h inadequate variables  c o n t r o l o f extraneous  (e.g., b e t t i n g c h o i c e s where s u b j e c t s a r e p r o v i d e d  w i t h money t o p l a y w i t h , i g n o r i n g e f f e c t s o f g a i n s and l o s s e s on subsequent b e t t i n g b e h a v i o r ) a r e h i g h l y u n d e s i r a b l e . What w i l l be p r e s e n t e d here a r e measures t h a t have been found t o possess  c e r t a i n p r o p e r t i e s compatible w i t h our c r i t e r i a .  For a complete l i s t i n g o f t h e v a r i o u s measures employed i n e a r l i e r research, r e f e r to Slovic  (1964).  Judgmental Measure Brim and H o f f  (1957) d e s i g n e d t h e D e s i r e f o r C e r t a i n t y Test  (renamed E x t r e m i t y - C o n f i d e n c e  i n Judgment by Kogan and W a l l a c h  1 9 6 4 ) , an i n s t r u m e n t based on t h e n o t i o n t h a t g r e a t e r e x t r e m i t y i n judgment a f f o r d s t h e p o s s i b i l i t y o f a g r e a t e r magnitude o f e r r o r and judgmental  c o n f i d e n c e , w h i c h might i n d i c a t e an i n d i -  vidual's characteristic biases i n perceiving p r o b a b i l i t i e s of success and f a i l u r e .  S u b j e c t s a r e asked t o complete  sentences  o f t h e form "The Chances t h a t such and such an event w i l l a r e about  i n 100."  A f t e r making h i s p r o b a b i l i t y  occur  estimate,  t h e s u b j e c t i s asked t o r a t e h i s c o n f i d e n c e i n t h a t e s t i m a t e — r a n g i n g from v e r y s u r e t o n o t s u r e a t a l l .  Scores o b t a i n e d a r e  t h e mean c o n f i d e n c e r a t i n g and mean d e v i a t i o n from t h e most cons e r v a t i v e p r o b a b i l i t y estimate  (which i s 50%),  An example o f t h e items g i v e n runs as f o l l o w s t "The  chances t h a t a U.S. household  phone t o a r e g u l a r phone a r e about Very Sure  Quite Sure  Moderately Sure  w i l l have an e x t e n s i o n i n 100. Slightly Sure  Not Sure At A l l "  30  The C o n f i d e n c e Score d e r i v e d i s based on t h e f o l l o w i n g code I  1 f o r Very Sure, 2 f o r Quite S u r e , 3_ f o r M o d e r a t e l y  Sure,  4 f o r S l i g h t l y Sure and 5 f o r Not Sure a t A l l . The b a s i c c r i t i c i s m t h a t has come out so f a r i s t h e a c c u r a c y o f t h e assumption b e h i n d i t s c o n s t r u c t i o n .  I t i s assumed  t h a t t h e i n d i v i d u a l s a n s w e r i n g t h e i t e m s do not know t h e answers and a r e t h e r e f o r e making g u e s s e s .  The e x i s t e n c e o f s t a t i s t i c a l  d a t a , w h i c h can be used as b a s i s f o r a s s i g n i n g e s t i m a t e s (or p r o b a b i l i t y ) , i f known t o t h e i n d i v i d u a l s , may  confound  the  i n t e r p r e t a t i o n — e . g . , . . a n i n d i v i d u a l a s s i g n i n g an extreme number o r p r o p o r t i o n may  be e x p r e s s i n g h i s knowledge o f t h e m a t t e r  r a t h e r t h a n b e i n g extreme i n h i s judgments.  Thus, one  would  n o t be a b l e t o d i s t i n g u i s h between e x t r e m i t y o f judgment and t h e amount o f knowledge t h e p e r s o n p o s s e s s e s .  However, t h e  way  t o g e t around t h i s i s t o make s u r e t h a t t h e q u e s t i o n s asked a r e g e n e r a l q u e s t i o n s whose answers a r e . n o t known t o t h e s u b j e c t s . The C o n f i d e n c e Score r e v e a l s how t h e i r answers.  s u r e the s u b j e c t s a r e o f  I t i s hypothesized that i n d i v i d u a l s w i l l  be  more extreme i n t h e i r judgment when t h e y a r e h i g h l y c o n f i d e n t , and l e s s extreme when t h e y have low c o n f i d e n c e . Kogan and W a l l a c h  (1964).employed  o f t h e i r s t u d y on r i s k - t a k i n g .  t h i s i n s t r u m e n t as p a r t  Sex d i f f e r e n c e s were found i n  t h e i r a n a l y s i s , c o n f i r m i n g t h e i r p r e v i o u s s t u d y ( W a l l a c h and Kogan 1 9 5 9 )  i n i t s c o n c l u s i o n t h a t women were h i g h l y  l e s s f r e q u e n t l y t h a n men  certain  but. t h a t when t h e y were c e r t a i n , t h e y  were more w i l l i n g t o t a k e l a r g e  risks.  31 Dilemma o f Choice Wallach  Questionnaire  and Kogan (1959) developed a q u e s t i o n n a i r e t o  obtain p r o b a b i l i t y preferences  i n everyday l i f e  situations.  On t h i s t e s t , a s u b j e c t i s p r e s e n t e d w i t h 12 h y p o t h e t i c a l s i t u a t i o n s , each r e q u i r i n g a c h o i c e between a s a f e a l t e r n a t i v e and a more a t t r a c t i v e but r i s k y one. to  The  s u b j e c t , a c t i n g as a d v i s o r  the p r o t a g o n i s t i n each s i t u a t i o n , i s t o i n d i c a t e the p r o b a -  b i l i t y o f s u c c e s s w h i c h would be s u f f i c i e n t f o r him t o s e l e c t the r i s k y  alternative.  A b r i e f d e s c r i p t i o n of three of these s i t u a t i o n s followsi 1.  Mr. A., an e l e c t r i c a l e n g i n e e r , has t h e c h o i c e o f s t a y i n g w i t h h i s p r e s e n t j o b a t a modest, though adequate s a l a r y o r o f moving on t o a n o t h e r j o b o f f e r i n g more money but no l o n g - t e r m s e c u r i t y .  2.  Mr. B., who has developed a s e v e r e h e a r t a i l m e n t , has the c h o i c e o f c h a n g i n g many o f h i s s t r o n g e s t l i f e h a b i t s or of undergoing a d e l i c a t e medical o p e r a t i o n w h i c h might succeed o r might prove f a t a l .  3.  Mr. C., a man o f moderate means, has t h e c h o i c e o f i n v e s t i n g a sum o f r e c e n t l y i n h e r i t e d money i n s e c u r e " b l u e - c h i p " s t o c k s and bonds o r i n more r i s k y s e c u r i t i e s o f f e r i n g the p o s s i b i l i t y of l a r g e g a i n s .  Response c a t e g o r i e s and i n s t r u c t i o n s f o r t h e i r use f o r i t e m 2 a r e as f o l l o w s t Imagine t h a t you are a d v i s i n g Mr. B. L i s t e d below are s e v e r a l p r o b a b i l i t i e s o r odds t h a t the o p e r a t i o n w i l l p r o v e s u c c e s s f u l . P l e a s e check t h e l o w e r p r o b a b i l i t y t h a t you would c o n s i d e r a c c e p t a b l e f o r the o p e r a t i o n to be performed. . . . . . P l a c e a check, h e r e i f you t h i n k Mr. B. s h o u l d not have t h e o p e r a t i o n , no m a t t e r what t h e p r o b a b i l i t i e s . The chances a r e 9 i n 10 t h a t t h e o p e r a t i o n w i l l a success.  be  The chances are 7 i n 10 t h a t the o p e r a t i o n w i l l a success.  be  32 The chances a r e 5 i n 10 t h a t t h e o p e r a t i o n w i l l be a success. The chances a r e 3 i n 10 t h a t t h e o p e r a t i o n w i l l be a success. The chances a r e 1 i n 10 t h a t t h e o p e r a t i o n w i l l be a success. The response  c a t e g o r i e s were r e v e r s e d i n o r d e r f o r every  o t h e r i t e m ; t h a t i s , they were a r r a y e d from 1 i n 10 upward f o r t h e odd items and from h i g h l e v e l s down t o 1 i n 10 f o r the even items. Actual Betting  Instruments  V a r i o u s r e s e a r c h e r s b e l i e v e t h a t r i s k - t a k i n g may be more a c c u r a t e l y measured i n s i t u a t i o n s where t h e outcomes a r e r e a l r a t h e r t h a n h y p o t h e t i c a l . M o s t e l l e r and Nogee (1951) p r e s e n t e d s u b j e c t s w i t h s e t s o f wagers and t h e n a c t u a l l y p l a y e d out t h e s u b j e c t ' s c h o i c e s , w i t h r e a l money changing  hands.  Edwards.(1953, 1954a, 1954b) employed b e t t i n g i n s t r u m e n t s i n studying p r o b a b i l i t y preferences.  He a l s o found t h a t r i s k  t a k i n g a t t i t u d e s under r e a l gambling  s i t u a t i o n s were s i g n i f i -  c a n t l y d i f f e r e n t from t h o s e under i m a g i n a r y gambling Coombs and P r u i t t  (I960) used gambles o f z e r o  situations. expected  v a l u e i n s t u d y i n g v a r i a n c e p r e f e r e n c e s among s t u d e n t s . Suydam and M y e r ( 1 9 6 2 ) o f f e r e d t h e i r s u b j e c t s c h o i c e s o f e i t h e r gambles o r s u r e amounts, t h e s u r e amounts b e i n g sometimes l o s s e s and sometimes w i n s . S c o d e l , Minas a n d R a t o o s h (1959) a l s o used r e a l  gambling  i n t h e i r attempt t o r e l a t e p r o b a b i l i t y p r e f e r e n c e s t o a c h i e v e ment m o t i v a t i o n and o t h e r s e l e c t e d p e r s o n a l i t y v a r i a b l e s such as  intelligence.  33  C r i t i c i s m s of the betting studies are usually directed t o wards t h e way t h e e x p e r i m e n t s were c a r r i e d out. g e n e r a l l y provided with the i n i t i a l stakes  Subjects  were  f o r gambling.  The  Coombs and P r u i t t s t u d y (i960) has been c r i t i c i z e d on t h e zero e x p e c t e d v a l u e and t h e t r i v i a l s t a k e s i n v o l v e d  ( A l d e r f e r and  Bierman 1970). C e r t a i n amendments must be made i n t h e c o n s t r u c t i o n o r design of the b e t t i n g instrument.  One would be t o make t h e  s t a k e s s i g n i f i c a n t enough f o r t h e s u b j e c t s .  Also, the subjects  s h o u l d n o t be g i v e n t h e o r i g i n a l amount t o p l a y w i t h .  The e f f e c t s  o f g a i n and l o s s on subsequent b e t t i n g b e h a v i o r s h o u l d a l s o be controlled. Other P o s s i b i l i t i e s ...... The Semantic D i f f e r e n t i a l t e c h n i q u e , Osgood and S u c c i  a method developed by  (1969) f o r t h e e v a l u a t i o n o f meanings, may be  a p p l i e d i n r i s k - t a k i n g m e a s u r e m e n t . I n t h e p a s t , t h e Semantic D i f f e r e n t i a l t e c h n i q u e (Kogan and W a l l a c h 1964) has been employed for  t h e s t u d y o f p e o p l e ' s v i e w s o f r i s k - l a d e n concepts l i k e  e a r t h q u a k e s , q u i c k s a n d , and t h e s t o c k market.  But t h e s e s t u d i e s  have n o t been q u i t e s u c c e s s f u l because t h e y have been u n a b l e t o take m u l t i d i m e n s i o n a l i t y o f r i s k i n t o account.  One p o s s i b i l i t y  i s t o employ a semantic d i f f e r e n t i a l s c a l e t o w h i c h t h e s u b j e c t s respond i n t h e i r r a t i n g o f h y p o t h e t i c a l r i s k - t a k e r s i n t h e d i mension o f r i s k we so s p e c i f i e d .  An example o f a subset o f  differential i s1 " Independent  Dependent  w  where independent i s a f a v o r a b l e a d j e c t i v e and dependent, t h e  34  unfavorable.  R e l y i n g on the n o t i o n t h a t p e r s o n s would adhere  t o t h e i d e a of r a t i n g someone f a v o r a b l y i f t h i s someone had c h a r a c t e r i s t i c s s i m i l a r t o t h e i r own,  t h e Semantic D i f f e r e n t i a l  Technique would g i v e us an i n d i c a t i o n o f a p e r s o n ' s r i s k - t a k i n g a t t i t u d e by t h e way One  he p e r c e i v e s  risk-takers.  c a u t i o n t h a t s h o u l d be t a k e n i n mind i s t h a t t h e Seman-  t i c D i f f e r e n t i a l i s not u n i d i m e n s i o n a l and what we s h o u l d employ i s t h e " e v a l u a t i v e " . d i m e n s i o n .  Osgood and S u c c i  have a good d i s c u s s i o n o f t h e dimensions o f Semantic T h i s d i s c u s s i o n w i l l not be r e p e a t e d The  i n t e r v i e w technique  (1969)  Differential.  here.  employed i n most s o c i a l p s y c h o l o g y  s t u d i e s o r as p a r t o f t h e " p r o j e c t i v e " t e c h n i q u e  i n psycho-  a n a l y s i s o f f e r s a n o t h e r p o s s i b i l i t y from w h i c h one a r i s k - t a k i n g measure.  only  could derive  T h i s would i n v o l v e q u e s t i o n s about  the s u b j e c t s handle s i t u a t i o n s of r i s k i n h i s r e a l  how  life—i.e.,  t h e k i n d s o f a c t i v i t i e s t h e y u n d e r t a k e , w h i c h g i v e one an c a t i o n o f the amount o f r i s k t h e y . a r e w i l l i n g t o t a k e .  indi-  If risk  i s s u b j e c t i v e ( a c c o r d i n g t o S l o v i c 1 9 6 4 ) , what t h e n i s c o n s i d e r e d r i s k y and why  i s i t c o n s i d e r e d r i s k y by the i n d i v i d u a l ? I n t e r -  v i e w s p r o v i d e the answers t o t h e s e  questions.  Of c o u r s e , t h e d i f f i c u l t y w i t h the i n t e r v i e w . m e t h o d ,  as  w i t h o t h e r " p r o j e c t i v e " t e c h n i q u e s , used r a t h e r l o o s e l y , o c c u r s when one wants t o s c o r e t h e r e s p o n s e s .  Some amount o f  judgment" comes i n t o p l a y d u r i n g the i n t e r p r e t a t i o n of  "personal responses.  A v a r i a n t o f t h e i n t e r v i e w method i s the r a t i n g method. This.has 1962;  been used by S l o v i c ( c a l l e d t h e r i s k r a t i n g scheme) i n  The s u b j e c t s were asked t o r a t e t h e i r f e l l o w f r a t e r n i t y  35 brothers  on a b i p o l a r t r a i t o f g e n e r a l w i l l i n g n e s s t o t a k e r i s k s .  T h i s k i n d o f a r a t i n g system r e s t s on the assumption t h a t a p e r son c l o s e t o t h e i n d i v i d u a l b e i n g r a t e d knows enough about t h e l a t t e r * s r i s k - t a k i n g d i s p o s i t i o n t o make a judgment.  The danger  here i s t h a t i t i s h i g h l y p o s s i b l e t h a t t h e r a t e r employs h i s own  v a l u e on r i s k as a gauge t h r o u g h w h i c h he measures  people.  other  Thus, we must know something about the a t t r i b u t e s and  w e i g h t s he uses i n t h e j u d g i n g .  The s i m p l i f i e d r a t i n g method  employed by S l o v i c (1962) must be extended t o i n c l u d e  questions  on the s u b j e c t s * reasons b e h i n d t h e r a t i n g (e.g., what d e c i s i o n s d i d he (the p e r s o n b e i n g r a t e d ) r e c e n t l y t a k e t h a t seem t o  indi-  c a t e h i s r i s k - t a k i n g d i s p o s i t i o n ? o r why do you suppose he i s that kind ofa r i s k - t a k e r ? ) . Discussion There are o t h e r a l t e r n a t i v e s f o r measuring r i s k - t a k i n g p r o p e n s i t i e s , w h i c h may be c o n s i d e r e d  as outgrowths o f psycho-  l o g y o r w h i c h may be l a b e l l e d i n t e r - d i s c i p l i n a r y .  Some o f t h e s e  a r e games w h i c h a r e dynamic enough t o i n c l u d e some amount o f complexity  and r e a l i s m .  Management games may be m o d i f i e d t o  s e r v e as r i s k - t a k i n g p r o p e n s i t y measures. t h e s e are c o n s i d e r e d  A l t h o u g h nowadays  l a r g e l y p a r t o f Management, a d i s t i n c t  d i s c i p l i n e , t h e y may be c o n s i d e r e d d e r i v a t i o n s by p s y c h o l o g i s t s  o f games employed  (e.g. P r i s o n e r Dilemma Game,. War  S t r a t e g y Games  o f S t r e u f f e r t (1965) c a l l e d . A T a c t i c a l N e g o t i a t i o n s . G a m e ) . The In-Basket. f o r instance, (from.Frederiksen 1962), may be m o d i f i e d  1962; H e m p h i l l ,  t o become a r i s k - t a k i n g p r o p e n s i t y  et al.. measure.  36 P e r s o n n e l S e l e c t i o n Games, where t h e a t t r i b u t e s c o n s i d e r e d a r e l a r g e l y t h o s e r e l a t e d t o r i s k - t a k i n g , a r e another  example,  A c u m u l a t i v e body o f m a t e r i a l s can be d e r i v e d by s t u d y i n g some i n s t r u m e n t s and d e s i g n s used by o t h e r s .  However, m o d i f i -  c a t i o n s must be made on i n s t r u m e n t s used i n t h e p a s t .  A fallacy  can be committed i n r e s e a r c h by merely l i f t i n g an i n s t r u m e n t from t h e p a s t and a p p l y i n g i t based on a d e s i g n s p e c i f i e d by other researchers without c o n s i d e r i n g the circumstances  of the  research. I f a " s u p e r i o r " measure o f RT p r o p e n s i t y can be c o n s t r u c t e d , i n q u i r y i n t o t h e p e r s o n a l i t y c o r r e l a t e s o f r i s k - t a k i n g may be done w i t h a g r e a t e r amount o f s u c c e s s . Chapter 4 w i l l s t a r t w i t h a b r i e f d i s c u s s i o n o f t h e d e c i s i o n making environment as an o v e r v i e w ,  and t h e n w i l l  describe  the f i n a l package by d i v i d i n g i t i n t o i t s s u b s e t s o f i n s t r u m e n t s w i t h e x p l a n a t i o n s and i l l u s t r a t i o n s .  37  CHAPTER 4 A PACKAGE OF RT INSTRUMENTS AND An  RELATED MEASURES  Overview D e c i s i o n making i s d e f i n e d as p r i m a r i l y d e a l i n g w i t h  a t i o n and c h o i c e from a s e t o f a l t e r n a t i v e s . a c t i o n are i m p l i e d i n such a d e f i n i t i o n .  Both thought  and  The main elements o f  d e c i s i o n making a r e a d e c i s i o n - m a k e r and h i s d e c i s i o n ment.  evalu-  environ-  The main a t t r i b u t e s o f a d e c i s i o n - m a k e r a r e h i s v a l u e s ,  h i s b e l i e f s , and h i s r e s o u r c e s  (MacCrimmon 1970).  Judgment,  b e i n g an i m p o r t a n t p a r t o f d e c i s i o n - m a k i n g , d e r i v e s i t s s t r e n g t h from the i n t e r a c t i o n o f a d e c i s i o n - m a k e r ' s a t t r i b u t e s and i n f o r m a t i o n on hand. propensity  C l e a r l y , the decision-maker's r i s k t a k i n g  i s p a r t o f h i s a t t r i b u t e s and t h e r e f o r e  d e c i s i o n making.  the  influences  Though t h e r i s k t a k i n g p r o p e n s i t y  of a d e c i s i o n  maker i s r e l e v a n t o n l y i n s i t u a t i o n s o f r i s k o r u n c e r t a i n t y , most p r a c t i c a l management d e c i s i o n s i t u a t i o n s however a r e c h a r a c t e r i z e d by c o n s i d e r a b l e  u n c e r t a i n t y — i . e . , where o n l y  partial  knowledge o f r e l e v a n t v a r i a b l e s comes i n t o p l a y . A d e c i s i o n maker who  uses expected v a l u e as h i s d e c i s i o n  r u l e i m p l i e s t h a t he i s r i s k - n e u t r a l . This however may  be  con-  s i d e r e d as a s p e c i a l case o f a r i s k t a k i n g a t t i t u d e . Outcomes and a c t i o n s a r e two  different things.  Sometimes,  a d e c i s i o n maker b e l i e v e s t h a t the c o u r s e o f a c t i o n he  takes  i n f l u e n c e s t h e outcomes o f h i s d e c i s i o n ; but the e x t e n t o f s u c h i n f l u e n c e i s , by and l a r g e , u n c e r t a i n .  The  l a r g e r his pool  r e l e v a n t i n f o r m a t i o n the b e t t e r h i s e v a l u a t i v e  capabilities.  of  38 However, he knows t h a t , d e s p i t e h i s knowledge, t h e r e i s s t i l l such a t h i n g as u n e x p l a i n e d v a r i a t i o n o r a r e a o f doubt. The whole t o p i c o f r i s k - t a k i n g r e a l l y belongs t o t h e domain o f " D e c i s i o n - m a k i n g under u n c e r t a i n t y . "  The amount o f  r i s k one i s w i l l i n g t o t a k e i s i n d e e d a d e c i s i o n by i t s e l f . Because a d e c i s i o n - m a k e r b e l i e v e s t h a t i t i s r e s u l t s t h a t count, he has t o e v a l u a t e t h e l i k e l i h o o d o f such r e s u l t s .  Sometimes,  t h e d e c i s i o n maker f a c e s an a l t e r n a t i v e which i s s t o c h a s t i c a l l y dominant; h e r e , t h e r e i s no q u e s t i o n as t o which a l t e r n a t i v e he i s going t o take.  However when s t o c h a s t i c dominance i s n o t  c l e a r - c u t , he g e t s i n t o a b i n d . he i s w i l l i n g t o t a k e .  He t r i e s t o e s t i m a t e what r i s k s  S i n c e t h e r e i s no c l e a r c u t way o f e s t i -  mating h i s a t t i t u d e towards r i s k , he does t h i s e s t i m a t i o n i n t u i tively.  I f a way i s p r o v i d e d f o r t h e d e c i s i o n maker t o measure  h i s r i s k t a k i n g a t t i t u d e , d e c i s i o n - m a k i n g may be f a c i l i t a t e d . Rather t h a n e s t i m a t i n g t h i s r i s k - t a k i n g p r o p e n s i t y every  time  he f a c e s a d e c i s i o n problem, t h e measurement o f h i s r i s k  atti-  tude i s done o n l y a few t i m e s .  A l s o , by q u a n t i f y i n g h i s r i s k  a t t i t u d e s , he can t e l l h i s s u b o r d i n a t e what r i s k s he i s w i l l i n g to take. O f t e n t i m e s , d e c i s i o n - m a k i n g i s d e l e g a t e d , depending upon t h e degree o f d e c e n t r a l i z a t i o n .  Here, we a r e t a l k i n g about  h i g h e r - l e v e l d e c i s i o n s (or " d e c i s i o n s o f h i g h e r q u a l i t y " ) — e.g.,  investment d e c i s i o n s .  g r a n t i n g o f choice-making  Here, t h e d e l e g a t i o n i s o f t e n t h e  powers.  However, t h e r e a r i s e s a b a s i c  q u e s t i o n o f whose r i s k t a k i n g p r o p e n s i t y s h o u l d be t a k e n i n t o consideration.  Grayson (i960) suggested t h a t t h e s e n i o r manager's  39  u t i l i t y f u n c t i o n s h o u l d be used i n d e c i d i n g on t h e l e v e l o f r i s k that the subordinate decision-maker  should take i n s i t u a t i o n s  c o n c e r n i n g t h e a l l o c a t i o n o f company r e s o u r c e s f o r i n v e s t m e n t . Also, i f decision-making  i s t o be d e l e g a t e d , who we want  most depends upon, o t h e r t h i n g s b e i n g e q u a l , t h e r i s k t a k i n g a t t i t u d e o f our s u b o r d i n a t e — o n c e an a t t i t u d e .  we a r e a b l e t o a s c e r t a i n such  I n t h i s way, a p e r s o n c o u l d d e l e g a t e h i s d e c i s i o n -  making a u t h o r i t y t o someone whose r i s k - t a k i n g p r o p e n s i t y i s s i m i l a r t o h i s own—other q u a l i f i c a t i o n s being equal t o the r e s t of the candidates.  Prom t h e b u s i n e s s o r g a n i z a t i o n ' s p o i n t o f  v i e w , a h i g h r i s k - t a k e r i s n o t n e c e s s a r i l y good, n o r i s he bad; i t i s more a q u e s t i o n o f acceptance  o r w i l l i n g n e s s on t h e p a r t  o f t h e o r g a n i z a t i o n t o accept t h e l e v e l o f r i s k t h a t he might choose i n t h e f u t u r e .  Also, there i s a question of the s t a b i l i t y  o f h i s r i s k - t a k i n g a t t i t u d e over t i m e .  Thus, knowing something  about t h e r i s k - t a k i n g a t t i t u d e s o f people i n t h e o r g a n i z a t i o n o r o f t h o s e who a r e t o be c o n s i d e r e d soon as members o f t h e o r ganization helps c l a r i f y c e r t a i n issues.  Of c o u r s e , t h e r e a r e  s i t u a t i o n s where an e x t r e m e l y r i s k - a v e r s e * i n d i v i d u a l becomes a somewhat p o o r d e c i s i o n - m a k e r — e s p e c i a l l y when he has c o n t i n u e d s e e k i n g i n f o r m a t i o n even though t h e c o s t o f i n f o r m a t i o n - g a t h e r i n g i s much, much g r e a t e r t h a n t h e "expected v a l u e o f p e r f e c t i n f o r mation. " The i d e a o f r i s k t a k i n g p r o p e n s i t y as i t r e l a t e s t o d e c i s i o n making i s n o t new.  I n h i s c l a s s r o o m d i s c u s s i o n , Dr. MacCrimmon  has i l l u s t r a t e d how r i s k t a k i n g p r o p e n s i t y i n t e r a c t s w i t h t h e v a r i o u s v a r i a b l e s i n t h e d e c i s i o n making p r o c e s s .  40 In o r d e r t o c l a r i f y what we have s a i d , we have c o n s t r u c t e d a diagram showing t h e r e l a t i o n s h i p o f r i s k t a k i n g p r o p e n s i t y w i t h other decision-making  variables.  T h i s i s i l l u s t r a t e d as  a schema i n F i g u r e 4.1. Some e x p l a n a t i o n c o n c e r n i n g The  t h i s schema must be g i v e n .  Person b r i n g s w i t h him a t t h e p o s t - p r o b l e m d e f i n i t i o n  several thingst  his personality characteristics  stage  (e.g. I-E Con-  t r o l ) and h i s demographic c h a r a c t e r i s t i c s ? w e a l t h i s d e f i n e d here as t h e r e s o u r c e s he o r t h e o r g a n i z a t i o n has. l e v e l o f aspiration,among  Moreover, h i s  other t h i n g s , i n t e r a c t s with c e r t a i n  s i t u a t i o n a l e f f e c t s t o produce a c e r t a i n l e v e l o f e m o t i o n a l arousal.  His previous r i s k experiences  and t h e r e f o r e h i m s e l f .  would a f f e c t h i s  "wealth  M  S u b j e c t i v e p r o b a b i l i t y , l o o s e l y phrased  h e r e , would mean h i s tendency t o i n j e c t c e r t a i n s u b j e c t i v e e l e ments i n p r o b a b i l i t y assignment.  A l s o , i n f o r m a t i o n (as shown  by t h e double-arrowed l i n e ) i s sought and may be p o s s e s s e d by the i n d i v i d u a l , which w i l l i n f l u e n c e h i s p e r c e p t i o n o f the a l t e r n a t i v e e n v i r o n m e n t — w h i c h c o u l d be d e f i n e d as t h e s e t o f feasible alternatives that exist knowledge o f t h e i r e x i s t e n c e ) .  (with o r without t h e i n d i v i d u a l ' s P e r c e p t i o n , t h u s , i s a b i t broad  t o i n c l u d e s e a r c h b e h a v i o r — i . e . , r e c o g n i t i o n , whether a g i v e n p o s s i b l e a c t i o n i s an a l t e r n a t i v e o r n o t .  A s s o c i a t e d w i t h each  a l t e r n a t i v e , t h e r e a r e p o s s i b l e consequences t h a t c o u l d a r i s e . The  s e v e r i t y o f t h e consequences d e f i n i t e l y depends upon how  h i s p e r c e p t i o n i s a f f e c t e d by t h e i n f l u e n c e s we so c i t e d .  Ob-  j e c t i v e p r o b a b i l i t y , i n t h i s c a s e , may be " e x i s t e n t " o r "nonexistent"—depending  upon t h e problem.  However, l e t us make  'internal-External Control Defensiveness etc.  1  6  Situational Effects (emotional arousal),  \ pers o n a l i t y V c h a r a c tteerriisstti c s j  ^^demographic\ V c h a r a c t e r i s t icsj  Peer effects  EERSON  C  wealth  FIGURE 4.1  The R i s k Environment i n D e c i s i o n Making f o r an I n d i v i d u a l  42 t h e assumption t h a t o b j e c t i v e p r o b a b i l i t i e s e x i s t ; whether he knows them t o e x i s t o r not i s a n o t h e r m a t t e r .  A f t e r he  has  g a t h e r e d t h e s e t of a l t e r n a t i v e s he thought f e a s i b l e , h i s n e x t move i s c h o i c e .  He l o o k s back at the s e v e r i t y of consequences  o f each a l t e r n a t i v e , and the l i k e l i h o o d s o f t h e s e consequences. Now  h i s r i s k taking propensity  focuses  i t s e l f i n t o major  import-  ance, and a c t i o n f o l l o w s — t h e s e l e c t i o n o f a c o u r s e o f a c t i o n . The  a c t i o n w i l l have c e r t a i n consequences o r outcomes and,  de-  pending upon the e x t e n t o f t h e odds f o r o r a g a i n s t  favorable  outcomes, t h e outcomes w i l l be p e r c e i v e d and such  perception  w i l l be added on t o h i s p o o l o f p r e v i o u s D e f i n i t e l y , the schema we  be c l a r i f i e d  I f we  experiences.  have c o n s t r u c t e d i s t o o s i m p l i s -  t i c and needs f u r t h e r r e f i n e m e n t . s h i p s may  risk  But we  f e e l that  relation-  by such p r e s e n t a t i o n .  are i n t e r e s t e d i n s t u d y i n g r i s k t a k i n g i n  business  s i t u a t i o n s i n v o l v i n g t h i n g s l i k e t e c h n o l o g i c a l change, t i o n , ownership and the l i k e , we  should u t i l i z e  innova-  items that bear  a c l o s e r e l a t i o n s h i p t o t h e s e s i t u a t i o n s (MacCrimmon and Kwong 1972).  Because r i s k t a k i n g a t t i t u d e i s not u n i d i m e n s i o n a l ,  s e a r c h s h o u l d be f o c u s e d The  the  on what we're i n t e r e s t e d i n .  following c r i t e r i a  have been s e t up as g u i d e l i n e s i n  s e a r c h and development i 1.  A p p r o p r i a t e n e s s - The i n s t r u m e n t must f o c u s on b u s i n e s s d e c i s i o n problems and top dimensions o f r i s k r e l e v a n t t o the i n d i v i d u a l i n b u s i n e s s .  2.  M o t i v a t i o n - One has t o assume t h a t t h e r e i s a " t r u e " a t t i t u d e towards the o b j e c t . I t i s bel i e v e d t h a t i f the i n s t r u m e n t p o s s e s s e s c e r t a i n c h a r a c t e r i s t i c s that s u s t a i n emotional a r o u s a l , " t r u e " a t t i t u d e has a g r e a t e r l i k e l i h o o d o f  43  surfacing. Part of t h i s property i s the a b i l i t y o f t h e i n s t r u m e n t t o e l i c i t responses which apply t o the i n d i v i d u a l s r a t h e r than r e s p o n s e s which a r e merely s o c i a l l y a c c e p t a b l e a l t e r n a t i v e s (Gordon 1951)• The items must be c r e d i b l e , i n t e r e s t i n g , d i v e r s i f i e d , i n v o l v i n g and n o t t o o l o n g ( i . e . , t h a t i t must n o t be b o r e d o m - i n d u c i n g ) . 3.  D i s c r i m i n a t i o n - I t must be a b l e t o p l a c e i n d i viduals into categories, i . e . , i d e n t i f y the i n d i v i d u a l s on t h e b a s i s o f h i s r e s p o n s e s and c l a s s i f y them i n t o groups. S u f f i c i e n t v a r i a b i l i t y and c o n s i s t e n c y a r e p a r t o f t h i s p r o perty.  4.  C o n t r o l - I t must p o s s e s s t h e a b i l i t y t o cont r o l t h e d i f f e r e n t i a l p e r c e p t i o n s o f t h e same r i s k to distinguish various s i t u a t i o n a l effects.  5.  Ease o f A d m i n i s t r a t i o n - I t must be a b l e t o be a d m i n i s t e r e d w i t h l o w s u p e r v i s i o n and t h e m i n i mum o f i n s t r u c t i o n s , i n s t r u c t i o n s w h i c h a r e h i g h l y understandable.  6.  A n a l y s i s Ease - We r e f e r here t o s c o r i n g ease, ease o f d i r e c t i n t e r p r e t a t i o n and t h e c o m p a t i b i l i t y of the instrument with research design.  To f a c i l i t a t e c l a s s i f i c a t i o n o f t h e i n s t r u m e n t s , t h e r o l e s i t u a t i o n s i n t h e s e may be broken down i n t o » - What would you a d v i s e X t o do i f he were c o n f r o n t e d w i t h s i t u a t i o n s S? - What would you do i f you were Z and were c o n f r o n t e d w i t h s i t u a t i o n s S? - What would you do i f you were c o n f r o n t e d w i t h a t i o n s S? The  measures p r e s e n t e d i n t h i s c h a p t e r are t  situ-  e i t h e r com-  p l e t e l y new o r p a s t measures r e f i n e d t o s u i t p u r needs.  The  o r i g i n a l package i s c o n t a i n e d i n a w o r k i n g paper by MacCrimmon and  Kwong (1972).  package.  What w i l l be p r e s e n t e d here i s t h e f i n a l  I n o r d e r t o f a c i l i t a t e s e l e c t i o n and  construction,  the t h e s i s has a " p i l o t " group i n m i n d — a s e l e c t e d  group o f  kk U.B.C. Graduate Students  i n B u s i n e s s — w h o w i l l he g i v e n t h e  package as a p r e l i m i n a r y s t u d y on r i s k t a k i n g a t t i t u d e s . In p r e s e n t i n g these measures, we would l i k e t o p o i n t out t h a t a l t h o u g h t h e complete p r e s e n t a t i o n o f t h e i n s t r u m e n t s (item by i t e m ) w i l l n o t be made, i l l u s t r a t i o n s and d e s c r i p t i o n s a r e a v a i l a b l e f o r t h e b e n e f i t o f those who would want t o pursue further research into t h i s f i e l d .  The t h e s i s w r i t e r f e e l s t h a t  i t i s h i s prerogative t o withhold p u b l i c a t i o n o f h i s instruments i f he so d e s i r e s . The  Package B r i e f l y , we can d i v i d e t h e package i n t o two s e t s i  w h i c h r e q u i r e s t h e presence  o f the experimenter  (stock p r i c e  wagers, u t i l i t y q u e s t i o n s on s e v e r a l dimensions)  and one which  i s s e l f - e x p l a n a t o r y , r e q u i r i n g no a s s i s t a n c e o r presence perimenters  ( I n - B a s k e t ; Choice Dilemma i t e m s ;  one  o f ex-  Extremity-Confidence  i n Judgment; Event Occurrence and A c t i v i t y I n t e r e s t Q u e s t i o n n a i r e ; and t h e P e r s o n a l Record Q u e s t i o n n a i r e ) .  Also, the questionnaire  c a l l e d Event Occurrence and A c t i v i t y I n t e r e s t i s n o t a s t a n d a r d RT p r o p e n s i t y measure b u t a q u e s t i o n n a i r e c o n s i s t i n g o f I n t e r n a l E x t e r n a l C o n t r o l and S e n s a t i o n - s e e k i n g i t e m s .  We w i l l commence  t h e d i s c u s s i o n on t h e second s e t f i r s t . In-Basket  Exercise  In i t s p a s t form, t h e i n s t r u m e n t i s a c o l l e c t i o n o f l e t t e r s , memoranda, r e c o r d s o f in-coming als  t h a t have supposedly  istrative officer.  t e l e p h o n e c a l l s and o t h e r m a t e r i -  c o l l e c t e d i n t h e i n - b a s k e t o f an admin-  The form o f t h e In-Basket  i s a t t r a c t i v e due  45 t o i t s p r o x i m i t y w i t h the r e a l w o r l d . l o o k e d a t i n t h e p a s t werei  The f a c t o r s e x p e r i m e n t e r s  imaginativeness, organizational  change, c o n c e r n w i t h p u b l i c r e l a t i o n s , e t c .  The In-Basket con-  t a i n e d i n t h e package aims a t measuring r i s k t a k i n g p r o p e n s i t y by examining t h e r e s p o n s e s t o t h e v a r i o u s items i t c o n t a i n s . I t i s composed o f s i x l e t t e r s and one memo, each o f which cont a i n s two c o u r s e s o f a c t i o n — o n e c e r t a i n and a n o t h e r u n c e r t a i n . Memo s h e e t s a r e p r o v i d e d f o r t h e s u b j e c t s t o respond w i t h . The s u b j e c t assumes t h e r o l e o f B i l l B i c k n e r , a d i v i s i o n a l V.P. f o r M u l t i n a t i o n a l P r o d u c t s , I n t e r n a t i o n a l , who j u s t a r r i v e d a t h i s j o b due t o t h e u n t i m e l y death o f a former V.P.  A l l infor-  m a t i o n c o n c e r n i n g t h e l e t t e r s and memos a r e i n t h e e x e r c i s e  it-  s e l f and t h e s u b j e c t i s not supposed t o a s k f o r c o n s u l t a t i o n . He i s t o go t h r o u g h t h e l e t t e r s and memo, r e s p o n d i n g t o them on memo s h e e t s p r o v i d e d i n o u t l i n e form.  Because B i c k n e r must  l e a v e p r o m p t l y t o c a t c h a p l a n e f o r an i m p o r t a n t meeting and w i l l not be back i n one week's t i m e , he must respond t o t h e i t e m s w i t h a s p e c i f i e d time l i m i t .  A f t e r r e s p o n d i n g on the  memo s h e e t s , t h e s u b j e c t i s asked t o answer a number o f q u e s t i o n s a t t h e end o f t h e e x e r c i s e — a Semantic D i f f e r e n t i a l s e t , where a d j e c t i v e p a i r s are p r o v i d e d f o r the s u b j e c t t o r a t e f o u r c o r r e s pondents, and a s e t o f q u e s t i o n s w h i c h asks him t h e p r o b a b i l i t y o f s u c c e s s he would a c c e p t b e f o r e t a k i n g t h e u n c e r t a i n a l t e r n a t i v e c o n t a i n e d i n each l e t t e r and memo. The b u s i n e s s l e t t e r s have been c r e a t e d from s i t u a t i o n s r e c o r d e d i n case s t u d i e s from I n t e r n a t i o n a l B u s i n e s s and Techn o l o g i c a l Change.  Both i m p l i e d and s t a t e d consequences  have  46 been b u i l t i n t o the items f o r the examinee t o weigh. l e t t e r s and memos may  The  be d e s c r i b e d b r i e f l y as f o l l o w s t  (1)  L e t t e r from Donald Moore o f t h e i r Canadian subs i d i a r y c o n c e r n i n g a p o s s i b l e s u i t : by another company on charges o f p a t e n t v i o l a t i o n , where t h e a l t e r n a t i v e s a r e i go t o c o u r t (the uncert a i n o n e ) , and s e t t l e out o f c o u r t (the c e r t a i n a l t e r n a t i v e ) . The recommendation by t h e w r i t e r o f the l e t t e r i s t o pay t h e s e t t l e m e n t amount.  (2)  L e t t e r from Frank B i c k n e r , son o f B i l l , s t a t i n g h i s i n t e n t i o n t o t a k e up music (the u n c e r t a i n a l t e r n a t i v e ) and l e a v e e n g i n e e r i n g (the c e r t a i n a l t e r n a t i v e ) . This i s a personal l e t t e r .  (3)  L e t t e r from P a u l Royce, a c l o s e f r i e n d o f B i l l , a s k i n g B i l l t o j o i n him i n a v e n t u r e i n t h e P h i l i p p i n e s c o n c e r n i n g coconut o i l e x t r a c t i o n ( u n c e r t a i n ) and l e a v e M u l t i n a t i o n a l Products (the c e r t a i n a l t e r n a t i v e ) .  (4)  L e t t e r from Johnny Kaye, P r o j e c t team d i r e c t o r f o r A r i z o n a , who recommends t h a t investment i n Arizona i s a t t r a c t i v e . Two c o u r s e s o f a c t i o n a r e open t o the company; go i n a l o n e (the unc e r t a i n a l t e r n a t i v e ) o r j o i n f o r c e s ( j o i n t vent u r e ) w i t h c o m p e t i t o r s (the c e r t a i n a l t e r n a t i v e ) . Recommendation was t o go i t a l o n e .  (5)  L e t t e r from John White o f t h e i r A t l a n t a s u b s i d i a r y where the c o n t i n u a t i o n o f a time and motion study (with a p o s s i b l e b e n e f i t of improving prod u c t i v i t y by a t l e a s t 25$) might s t a r t a g e n e r a l s t r i k e among.the w o r k e r s . White's recommendation was t o have Anderson, the Time and Motion r e s e a r c h e r , r e c a l l e d t o New York o f f i c e .  (6)  A memo from Annabel Johnson, the s e c r e t a r y , t e l l i n g B i c k n e r about Domier, a l a r g e buyer of t h e i r Quebec company's p r o d u c t s , who sought t o ban the Quebec company from s e l l i n g t o h i s competitor.  (7)  A l e t t e r from P e t e r T a y l o r , t h e m a r k e t i n g manager o f t h e i r New J e r s e y s u b s i d i a r y , i n f o r m i n g B i c k n e r of h i s i n t e n t i o n to r e s i g n i f the l o c a l p r e s i dent i n s i s t e d i n m a r k e t i n g a new p r o d u c t , T-32, i n s t e a d o f c o n t i n u i n g an o l d , e s t a b l i s h e d p r o d u c t . The c e r t a i n a l t e r n a t i v e was t o c o n t i n u e the o l d p r o d u c t w h i l e the u n c e r t a i n a l t e r n a t i v e was t o market t h e T-32.  47 An o r g a n i z a t i o n a l c h a r t o u t l i n i n g t h e l i n e - s t a f f  relation-  s h i p s i s i n c l u d e d i n t h e package t o c l a r i f y B i c k n e r ' s a r e a o f responsibility. Choice Dilemma Items The i n s t r u m e n t c o n s i s t s o f 10  i t e m s — 5 from Kogan and  W a l l a c h and 5 c o n s t r u c t e d i n t h e same f o r m a t .  In order to  determine t h e s e v e r i t y o f t h e consequences on t h e l i v e s o f t h e c e n t r a l persons i n v o l v e d , i n s t r u c t i o n s a r e g i v e n t o t h e subj e c t s t o rank t h e i t e m s i n t h e o r d e r o f g r e a t e r impact. We have mentioned  t h e format o f t h e c h o i c e Dilemma q u e s t i o n s  i n Chapter Three and w i l l enumerate t h e t e n items c o n t a i n e d i n our instrument» (1)  Mr. A., an e l e c t r i c a l e n g i n e e r , has t h e c h o i c e o f s t a y i n g w i t h h i s j o b a t a modest, though adequate s a l a r y o r moving on t o a n o t h e r j o b o f f e r i n g more money but no l o n g - t e r m s e c u r i t y (from K & W).  (2)  Mr. K., t h e m a r k e t i n g manager o f a f i r m , f a c e s t h e c h o i c e o f e i t h e r i n v e s t i n g $3 m i l l i o n i n a new p r o d u c t which c o u l d mean 20% ROI o r f a i l u r e o r i n v e s t i n g t h e same amount t o market an o l d , w e l l e s t a b l i s h e d p r o d u c t but w i t h no r e t u r n h i g h e r t h a n 10% ROI ( o r i g i n a l ) .  (3)  Mr. B., an a c c o u n t a n t , w i t h a s e v e r e h e a r t a i l m e n t , has t h e c h o i c e o f g o i n g t h r o u g h a d e l i c a t e m e d i c a l o p e r a t i o n which c o u l d c u r e him c o m p l e t e l y o r c o u l d be f a t a l , o r t o l i v e out h i s days by changing many o f h i s s t r o n g e s t l i f e h a b i t s , r e d u c i n g h i s work l o a d , changing h i s d i e t and g i v i n g up f a v o r i t e l e i s u r e - t i m e p u r s u i t s (K & W).  (4)  Mr. J . , p r o d u c t i o n s u p e r v i s o r , f a c e s a dilemmai t o go ahead or not t o go ahead w i t h some d r a s t i c changes t o improve the company, w h i c h , i f s u c c e s s f u l , would mean J's p r o m o t i o n as g e n e r a l manager and, i f a f a i l u r e , would mean J's t e r m i n a t i o n . I f he recommended no change, however, he would remain i n h i s p r e s e n t j o b w i t h no p r o s p e c t s o f p r o m o t i o n o r more t h a n minor s a l a r y i n c r e a s e s (original).  48 (5)  Mr. C., man o f moderate means, has t h e c h o i c e o f i n v e s t i n g a sum of r e c e n t l y i n h e r i t e d money i n s e c u r e " " b l u e - c h i p s t o c k s and bonds o r i n more r i s k y s e c u r i t i e s o f f e r i n g the p o s s i b i l i t y o f l a r g e g a i n s (K & W). M  (6)  Mr. B.C., p r e s i d e n t o f a s u b s i d i a r y , has been a r rested f o r alleged treason. MIK, the p a r e n t company, f a c e s t h e c h o i c e o f s e l l i n g out a t a r e a s o n a b l e , but low p r i c e o r hanging on w i t h t h e p o s s i b i l i t y of B.C. b e i n g c o n v i c t e d w i t h the s u b s i d i a r y being expropriated ( o r i g i n a l ) .  (7)  Mr. E., p r e s i d e n t o f an American c o r p o r a t i o n cont e m p l a t i n g e x p a n s i o n , has t h e c h o i c e o f b u i l d i n g an a d d i t i o n a l p l a n t i n t h e U.S. w i t h t h e e x p e c t a t i o n o f a moderate r e t u r n on t h e i n v e s t m e n t o r o f b u i l d i n g i n a f o r e i g n c o u n t r y w i t h an u n s t a b l e p o l i t i c a l h i s t o r y , where, however, r e t u r n s would be c o n s i d e r a b l y h i g h e r (K & W).  (8)  Mr. T.D., s a l e s manager o f a U.S. s u b s i d i a r y , has t h e c h o i c e o f s e l l i n g $500,000 w o r t h o f goods t o a l o c a l p o l i t i c i a n who i s d e f i n i t e l y not g o i n g t o pay o r not s e l l i n g t h e goods t o him w i t h the p o s s i b i l i t y t h a t such r e f u s a l c o u l d i n c i t e anger and t r o u b l e from the p o l i t i c i a n ( o r i g i n a l ) .  (9)  Mr. K., a s u c c e s s f u l businessman w i t h a s t r o n g f e e l i n g o f c i v i c r e s p o n s i b i l i t y , has t h e c h o i c e o f s e e k i n g o r not s e e k i n g e l e c t i o n t o c o n g r e s s as a c a n d i d a t e o f a m i n o r i t y p a r t y w i t h l i m i t e d funds (K & W).  (10)  Mr. L., a r e a manager o f a U.S. f i r m i n Southeast A s i a , f a c e s the c h o i c e o f c o n t i n u i n g p r o d u c t i o n o r not i n t h e m i d s t o f a s t r i k e i n the U.S. West Coast Docks w h i c h c o u l d l a s t f o r 3 months or be s e t t l e d immediately (original).  In t h e same v e i n as Kogan and W a l l a c h , t h e response c a t e g o r i e s a r e r e v e r s e d i n o r d e r f o r every o t h e r i t e m — i . e . , t h e y are a r r a y e d from 1 i n 10 upward f o r t h e odd items and from h i g h l e v e l s down t o 1 i n 10  f o r t h e even i t e m s .  49 E x t r e m i t y - C o n f i d e n c e i n Judgment F i f t e e n items f o l l o w i n g t h e Brim and H o f f format have been c o n s t r u c t e d based on t h e same assumptions using t h i s instrument. l e d g e t h a t may  forwarded by s t u d i e s  In o r d e r t o remove t h e e f f e c t o f know-  contaminate t h e r e s u l t s , t h e items c o n s t r u c t e d  here a r e m o s t l y about f a c t s w h i c h we f e e l t h e s u b j e c t s have no knowledge o f .  For example, "The  i n Japan w i l l know how  chances t h a t an a d u l t Japanese  t o speak E n g l i s h a r e about  i s an i t e m whose e x a c t answer may  i n 100,"  not be known o r remembered by  the s u b j e c t . A l t h o u g h t h i s i s not t h e s t a n d a r d r i s k measurement, i t does r e f l e c t t h e " w i l l i n g n e s s o f a p e r s o n t o t a k e t h e r i s k o f e r r o r s i n judgments" and h i s c o n f i d e n c e l e v e l . The s u b j e c t s a r e asked t o i n d i c a t e t h e chances t h a t t h e event w i l l o c c u r and g i v e t h e i r c o n f i d e n c e by e n c i r c l i n g t h e phrase  t h a t d e s c r i b e s t h i s c o n f i d e n c e ( i . e . , Very Sure, Quite  Sure, M o d e r a t e l y Sure, Not Sure a t A l l ) . Event Occurrence and A c t i v i t y I n t e r e s t Q u e s t i o n n a i r e F o l l o w i n g t h e b e l i e f t h a t e x t e r n a l - i n t e r n a l c o n t r o l and s e n s a t i o n s e e k i n g a r e two p e r s o n a l i t y c o r r e l a t e s o f r i s k - t a k i n g , t h i s i n s t r u m e n t has been c o n s t r u c t e d by t a k i n g t e n items from R o t t e r ' s I-E s c a l e and t e n from t h e Zuckerman, et a l . S e n s a t i o n Seeking S c a l e .  The i n s t r u m e n t has been renamed t o d i s g u i s e i t s  intention. The I-E items a r e i n t e r s p e r s e d w i t h t h e S e n s a t i o n S e e k i n g items u s i n g the format o f t h e o r i g i n a l s .  Two  examples o f items  50 contained i n t h i s instrument f o l l o w t (1)  a. b.  (2)  a. b.  Many o f t h e unhappy t h i n g s i n p e o p l e ' s l i v e s a r e p a r t l y due t o bad l u c k , People's m i s f o r t u n e s r e s u l t from t h e m i s t a k e s t h e y make. I would l i k e a j o b w h i c h would r e q u i r e a l o t of t r a v e l l i n g , I would p r e f e r a j o b i n one l o c a t i o n .  A l l t h e odd items a r e R o t t e r I-E t y p e w h i l e a l l even items are sensation-seeking type.  Also, the order of the i n t e r n a l  c o n t r o l c h o i c e and t h e e x t e r n a l c o n t r o l c h o i c e i s r e v e r s e d f o r every o t h e r odd i t e m .  The same i s t r u e o f t h e s e n s a t i o n s e e k i n g  i t e m s , i n t h e case o f even i t e m s . P e r s o n a l Records In o r d e r t o s e c u r e i n f o r m a t i o n on t h e demographic c h a r a c t e r i s t i c s o f the s u b j e c t , t h i s instrument, i n the u s u a l survey mat,  for-  c o n s i s t s o f q u e s t i o n s c o n c e r n i n g age (expressed i n terms o f  y e a r o f b i r t h ) , e d u c a t i o n l e v e l o f t h e s u b j e c t and h i s p r e v i o u s background, h i s a s s e t s and l i a b i l i t i e s ;  h i s l e i s u r e h a b i t s (e.g.,  p l a y i n g p o k e r , e t c . ) , h i s w o r k i n g e x p e r i e n c e , how he f i n a n c e s his  e d u c a t i o n and t h e l i k e . The s u b j e c t s ' responses  a r e v a l u e s o f v a r i o u s demographic  v a r i a b l e s t h a t may be r e l a t e d t o t h e i r r i s k t a k i n g a t t i t u d e s . Some o f t h e s e v a r i a b l e s were suggested by Kogan and W a l l a c h (1967) i n t h e i r essay on t h e d e t e r m i n a n t s havior.  o f r i s k t a k i n g be-  We i n t e n d t o examine t h e r i s k t a k i n g measures and t h e  s u b j e c t s ' responses  on t h e s e q u e s t i o n n a i r e s by r e l a t i n g t h e s c o r e s  g e n e r a t e d t o t h e v a r i o u s demographic v a r i a b l e s sought by t h e Personal  Record.  51 U t i l i t y Type Questions Each s u b j e c t i s asked f o u r s e t s o f q u e s t i o n s by t h i s instrument.  Two o f the s e t s c o n c e r n q u e s t i o n s  by t h e s u b j e c t i n h i s b u s i n e s s provided set,  o r p r o f e s s i o n a l r o l e , which i s  f o r by a s h o r t s c e n a r i o .  the questions  t o be answered  Except f o r t h e S c a l e o f Wager  seek t o e l i c i t c e r t a i n t y e q u i v a l e n c e s by  u s i n g the method o f c h a i n i n g  (see Chapter 2).  The s e t s a r e  composed o f the f o l l o w i n g i a.  P e r s o n a l U t i l i t y s e t s - .two s e t s o f items are g i v e n . The f i r s t i s the S c a l e o f Wager where t h e s u b j e c t i s asked q u e s t i o n s about wagers i n terms o f t h e i r cash e q u i v a l e n c e s (buying) and o f t h e d e c i s i o n t o a c c e p t o r r e j e c t the l o t t e r i e s o f f e r e d . The second i s c a l l e d the Compensation U t i l i t y Q u e s t i o n n a i r e where t h e f i r s t q u e s t i o n i s used as a b a s i s f o r a " p l a n n i n g h o r i z o n " — i . e . , h i s annual compensation i n h i s f i r s t y e a r o f work ( e x p e c t e d ) . The p r o b a b i l i t i e s i n v o l v e d here are .80 and .20 f o r chances o f s u c c e s s and f a i l u r e r e s p e c t i v e l y as c o n t r a s t e d w i t h the 50-50 odds o f the f i r s t s e t . Here, we a r e a f t e r the amount o f the b i g g e s t p a y - o f f i n t h e case o f the u n c e r t a i n a l t e r n a t i v e , t h a t would make him i n d i f f e r e n t between the c e r t a i n and u n c e r t a i n alternatives.  b.  Business U t i l i t y s e t s - two s c e n a r i o s are g i v e n f o r the two s e t s c o n t a i n e d i n t h i s s e c t i o n . One concerns t h e assumption by the s u b j e c t o f t h e r o l e o f a g e n e r a l manager o f a s m a l l company and a n o t h e r t e l l s the s u b j e c t t o assume t h e r o l e o f a d i v i s i o n manager o f a l a r g e i n t e r n a t i o n a l b u s i n e s s . He i s t o answer the s e t p e r t a i n i n g t o the s c e n a r i o w i t h the s p e c i f i e d r o l e i n mind... - Two typ.es. .of u t i l i t y questions, are asked, h e r e — N e t P r o f i t U t i l i t y Questions and Rate o f Return Questions. Equilib r a t i n g p r o b a b i l i t y , i s s o l i c i t e d by each i t e m i n t h e .case of. Net P r o f i t U. Questions w h i l e i n the Rate o f R e t u r n , t h e cash e q u i v a l e n t s (or the Cert a i n t y Monetary E q u i v a l e n t s ) o f the u n c e r t a i n a l t e r n a t i v e s are s o l i c i t e d , where the p r o b a b i l i t i e s i n v o l v e d are 50-50.  In o r d e r t o reduce the c o n t a m i n a t i o n  o f r e s u l t s t h a t may be  caused by l e a r n i n g e f f e c t s , t h e p e r s o n a l u t i l i t y and t h e  Business  52  U t i l i t y sets are interchanged  randomly.  A l s o , f o r purposes o f  i n t e r p e r s o n a l comparison, t h e n e t p r o f i t and t h e r a t e - o f - r e t u r n u t i l i t y questionnaires are interchanged  randomly between s c e n a r i o  of t h e f i r s t type and o f t h e second t y p e . The  inclusion of the u t i l i t y  stems from c o n v e n i e n c e .  items i n t h e i n t e r a c t i v e s e t  In order t o f a c i l i t a t e t h e s u b j e c t s ,  the e n t i r e package i s d i v i d e d i n t o s m a l l e r l o t s .  The u t i l i t y  items a r e thus i n c l u d e d as p a r t o f t h e i n t e r a c t i v e s e t . we f e e l t h e u t i l i t y i.e.,  how t o f i l l  Also,  items may need more v e r b a l c l a r i f i c a t i o n s —  i n t h e b l a n k s , what v a r i a b l e s s h o u l d be  con-r  sidered constant, etc. Stock  P r i c e Wagers The  s u b j e c t s a r e p r e s e n t e d w i t h f i v e s e t s o f wagers i n  w h i c h t h e p a y - o f f s a r e r e a l r a t h e r t h a n h y p o t h e t i c a l as compared to  t h e o t h e r measures.  Although  t h e s u b j e c t s have a chance o f  g a i n i n g a c t u a l money, o n l y one o f t h e chosen wagers, s e l e c t e d randomly, w i l l be p l a y e d out.  I n each s e t , one o f t h e o p t i o n s  i s n o t a wager a t a l l s i n c e i f s e l e c t e d , t h e s u b j e c t i s e n t i t l e d to  $2.00 f o r s u r e .  The r e s t o f t h e wagers d i f f e r i n t h e amount  o f w i n o r l o s s , t h e p r o b a b i l i t i e s i n v o l v e d and, the expected w i n n i n g s .  Information concerning  i n two s e t s ,  v  t h e amount o f  w i n o r l o s s , t h e p r o b a b i l i t y o f w i n n i n g and t h e expected w i n n i n g s i s provided.  These wagers a r e based on t h e f r a c t i o n a l p a r t o f  t h e p r i c e s o f f i v e s t o c k s s e l e c t e d randomly from a l i s t o f 100 s t o c k s h e a v i l y t r a d e d on t h e New York Stock Exchange.  Set A  and B c o n t a i n o p t i o n s whose expected w i n n i n g s a r e $2.00 w h i l e  53  Set C s t a r t s out w i t h a $ 2 . 0 0 sure amount o p t i o n , f o l l o w e d by items whose expected  w i n n i n g s i n c r e a s e "by 10$  of the  item's EV as the v a r i a n c e o f the wager i n c r e a s e s .  previous  Set D i s  the r e v e r s e o f Set C where the expected w i n n i n g s decrease as the v a r i a n c e i n c r e a s e s .  In Set E, t h e p r o b a b i l i t y o f  winning  i s f i x e d a t 62% w i t h the amounts o f w i n and l o s s v a r y i n g , a l l w i t h expected w i n n i n g s o f $ 2 . 0 0 . A l i s t o f 100 ment.  The  1/2,  i s attached t o the  instru-  s u b j e c t wins i f t h e f r a c t i o n a l amount o f a s t o c k ' s  p r i c e i s 1/8, 1/4,  s t o c k s under $50  3/4,  3/8 7/8  or 5/8;  he l o s e s i f t h e f r a c t i o n a l amount i s  o r a whole number.  o f wagers a r e o f t h e  G e n e r a l l y , the  options  formi  "You w i l l r e c e i v e $ (amount o f win) i f a t l e a s t (number) o f t h e 5 s t o c k s has (have) a f r a c t i o n a l p r i c e ( s ) of 1/8, 3/8, or 5/8. However, you must pay $ (amount o f l o s s ) i f o n l y (number) o f t h e f i v e s t o c k s has/have one o f t h e s e f r a c tional prices. Chance o f w i n n i n g  Expected w i n n i n g  "  Method o f S c o r i n g the Items The 1.  f o l l o w i n g s c o r e s w i l l be used as i n p u t t o a n a l y s i s t Choice Dilemma Scores - each i t e m w i l l have as a r e s -  ponse a number out o f 10 of success. for  The  t h a t the s u b j e c t a c c e p t s as t h e odds  t e n numbers from the t e n items w i l l be averaged  each s u b j e c t and w i l l c o n s t i t u t e a t o t a l s c o r e on t h i s s e t .  In a d d i t i o n , rank r e s p o n s e s ( r a n k i n g by s u b j e c t s i n o r d e r  of  t h e g r a v i t y o f the consequences o f t h e items on t h e l i v e s  of  the c e n t r a l persons i n v o l v e d ) w i l l be used f o r s t u d y i n g the  54  r a n k c o r r e l a t i o n s o f h i g h r i s k t a k e r s and low r i s k t a k e r s as determined by t h e i r t o t a l s c o r e f o r the s e t . 2.  In-Basket  Scores - S e v e r a l s c o r e s w i l l be  derived  from the e x e r c i s e . (a)  Note/Wire Response Set - t h e v e r b a l r e s p o n s e s  w i l l be g i v e n ranks (of r i s k a v e r s i o n ) by t h e examiner based on t h e s t r a t e g i e s the s u b j e c t s have adopted. the g r e a t e s t  Rank 1 w i l l  imply  risk-taking.  (b)  Ranks - each i t e m w i l l be r a n k e d by t h e  subject  i n the order of importance. (c)  Grades - the s u b j e c t i s asked t o a s s i g n grades  based on h i s p e r c e p t i o n o f the importance o f t h e consequences to  him as a businessman.  There w i l l be 7 grades f o r each sub-  j e c t w i t h t h e i t e m he deemed as most i m p o r t a n t ( i . e . , maximum i s (d)  graded as  100  100).  Score f o r P a r t A ( a f t e r - E x e r c i s e Q u e s t i o n n a i r e )  An average i s d e r i v e d from the odds t h e s u b j e c t a s s i g n e d  to  each i t e m . (e)  Semantic D i f f e r e n t i a l Score - t h e s u b j e c t i s  asked t o r a t e the p e r s o n s named by the q u e s t i o n n a i r e w i t h the adjective-pairs  (10  i n a l l ) provided.  t i f i e d as f a v o r a b l e o r u n f a v o r a b l e +3,  0 to -3  and - 5 .  The  a d j e c t i v e s are i d e n -  and the s c a l e s r u n from  +5t  These are added f o r t h e t e n a d j e c t i v e  p a i r s and r e p r e s e n t h i s s c o r e f o r the Semantic D i f f e r e n t i a l t h a t p a r t i c u l a r person. these i n d i v i d u a l scores  on  A t o t a l s c o r e can be d e r i v e d by a d d i n g together.  55 3.  Event Occurrence and A c t i v i t y I n t e r e s t Scores -  scores are d e r i v e d — o n e ,  two  the number o f i n t e r n a l c o n t r o l a l t e r -  n a t i v e s t h e s u b j e c t s e l e c t e d and two, t h e number o f s e n s a t i o n s e e k i n g a l t e r n a t i v e s he chose. 4. for  Extremity-Confidence  Scores - The c o n f i d e n c e  each i t e m w i l l be added up t o d e r i v e a c o n f i d e n c e  ( w i t h Very Sure as 1,  Quite Sure as 2,  Moderately  S l i g h t l y Sure as 4 and Not Sure a t A l l as 5).  score rating  Sure as  The  3»  extremity  s c o r e i s d e r i v e d by a v e r a g i n g the 15 squared d e v i a t i o n s o f t h e s u b j e c t ' s chance assignments from .50  ( c o n s i d e r e d as  "conserva-  tive"). 5.  P e r s o n a l Record " S c o r e s " - The  s u b j e c t ' s age, amount  o f a s s e t s , amount o f i n s u r a n c e , and l i a b i l i t i e s a r e d e r i v e d from the P e r s o n a l Record Q u e s t i o n n a i r e .  These are used as v a l u e s f o r  the demographic v a r i a b l e s we a r e i n t e r e s t e d i n .  From t h e  sec-  t i o n on h o b b i e s and l e i s u r e , we attempt t o deduce the s u b j e c t ' s risk taking attitude.  Using a s c a l e o f 5—where 1 i n d i c a t e s h i g h  r i s k - t a k i n g , 2 moderate r i s k - t a k i n g , 3 r e l a t i v e l y k moderately r i s k averse 6.  risk-neutral,  and 5 h i g h l y r i s k a v e r s e .  Stock P r i c e Wager Score - For each s e t the f o r m u l a i s  t h e rank ( d e r i v e d by o r d e r i n g t h e wagers from l o w e s t t o h i g h e s t v a r i a n c e , where v a r i a n c e i s ( l - p ) p ( a - b ) ^ w i t h p as the b i l i t y of l o s i n g  (-b  amount).of the c h o i c e minus the  probaproduct  o f the rank and the p r o p o r t i o n o f the v a r i a n c e o f t h e c h o i c e t o the v a r i a n c e l a r g e s t i n the s e t . adding up t h e s e i n d i v i d u a l s c o r e s .  A t o t a l s c o r e i s d e r i v e d by In m a t h e m a t i c a l  termsi  56  where r ^ r e p r e s e n t s t h e rank o f t h e o p t i o n chosen i n s e t c  Vci,  t h e v a r i a n c e o f t h e o p t i o n chosen;  and V ^ ,  i;  the l a r g e s t  variance of set i . 7.  U t i l i t y Scores - The s c o r i n g method employed essen-  t i a l l y i s s i m i l a r t o t h e one B a s s l e r used i n h i s d i s s e r t a t i o n (1972).  The h o r i z o n t a l d e v i a t i o n between t h e c e r t a i n t y e q u i v a -  l e n t s and t h e expected v a l u e i s d e r i v e d f o r each i t e m . t h i s v a l u e i s c o n v e r t e d i n t o percentage centage o f Expected V a l u e ) . summed and averaged.  Then,  terms ( i . e . , as a p e r -  The percentage  d e v i a t i o n s are  T h i s s c o r i n g method i s done f o r r a t e o f  r e t u r n u t i l i t y q u e s t i o n s , net p r o f i t and compensation.  As f o r  t h e s c a l e o f wager, we have e s s e n t i a l l y t h e f o l l o w i n g t o e x p r e s s t h e aggregate  score 1  Score = n  1=1  \ hdj,  where n i s t h e number o f no answers t o t h e wagers ( i . e . , t h a t t h e s u b j e c t w i l l not t a k e t h e wager), and hd^ i s t h e h o r i z o n t a l d e v i a t i o n o f t h e amount he would pay f o r t h e wager ( i ) from t h e expected v a l u e o f wager ( i ) . Discussion We have p r e s e n t e d here t h e n a t u r e o f t h e items used.  The  s c o r i n g c o n v e n t i o n , except i n the case o f E x t r e m i t y s c o r e , i s that higher scores r e f l e c t higher r i s k aversion. In t h e next c h a p t e r , we w i l l d i s c u s s t h e methodology i n v o l v e d i n a d m i n i s t e r i n g t h e s e i n s t r u m e n t s and t h e n a t u r e o f t h e subjects involved.  57  Far from p e r f e c t , we f e e l t h a t c e r t a i n improvements may he made on t h e i n s t r u m e n t s .  Some amount o f a t t e n t i o n has "been  t a k e n i n t h e c o n s t r u c t i o n o f t h e package. we have l e a r n e d from t h e m i s t a k e s come up w i t h a r e a s o n a b l e  We a l s o hope t h a t  of the past researchers t o  package.  We a r e n o t a s s e r t i n g t h a t t h i s package c o n t a i n s a l l t h e a l t e r n a t i v e s t o studying business-monetary r i s k t a k i n g .  We  a r e however c o n f i d e n t t h a t t h e i n s t r u m e n t s a r e u s e f u l i n r e search of t h i s The  nature.  e m p i r i c a l study c a r r i e d out i s n o t f o r v a l i d a t i n g t h e  package but i s f o r an i n - d e p t h a n a l y s i s o f a p a r t i c u l a r group o f i n d i v i d u a l s whose r i s k - t a k i n g t e n d e n c i e s we a r e i n t e r e s t e d in.  Some attempts  a t i t e m a n a l y s e s w i l l be made.  B u t , con-  s i d e r i n g t h e n a t u r e o f o u r sample, t h e s e a n a l y s e s must be r e a d with care.  A l s o , we would l i k e t o determine whether o r n o t some  o f t h e c o n c l u s i o n s c o n c e r n i n g r i s k t a k i n g , drawn by p a s t r e s e a r c h e r s , s t i l l h o l d f o r o u r group.  58  CHAPTER 5 THE Subjects  DESIGN OF THE STUDY  Used  T h i r t y - f i v e Graduate S t u d e n t s i n B u s i n e s s  Administration  o f t h e U n i v e r s i t y o f B r i t i s h Columbia completed t h e s e t s o f instruments  we have o u t l i n e d i n Chapter f o u r .  These s u b j e c t s  were s o l i c i t e d s t r i c t l y on a v o l u n t a r y b a s i s w i t h guarantee o f anonymity.  They were a l l Master's s t u d e n t s w i t h  different  options. The  o r i g i n a l i n t e n t i o n had been t o s e c u r e a t l e a s t f o r t y  subjects.  F i f t y c o p i e s o f the f i r s t s e t , c o n s i s t i n g o f t h e  c h o i c e dilemma, e x t r e m i t y - c o n f i d e n c e  and A c t i v i t y I n t e r e s t  were handed o u t , and a t l e a s t f o r t y In-Basket and p e r s o n a l r e c o r d s s h e e t s were d i s t r i b u t e d .  questionnaires But because o f  t h e amount o f t i m e i n v o l v e d , o n l y 3 5 completed the e n t i r e s e t s . The  s u b j e c t s were drawn from t h r e e M.B.A. c l a s s e s w i t h t h e  cooperation  o f the p r o f e s s o r s i n v o l v e d and from s t u d e n t s who  f r e q u e n t t h e U.B.C. Commerce Graduate Reading Room. M.B.A. c o u r s e s w e r e i  Organizational Behavior,  The t h r e e  P o l i c y , and  D e c i s i o n Making. Procedure Used Because t h e r e i s a p o s s i b i l i t y o f s u b j e c t s b e l i e v i n g t h a t r i s k t a k i n g i s a v a l u e and t h e r e f o r e r e s p o n d i n g  t o t h e items  i n o r d e r t o appear as r i s k t a k e r s , t h e d e s i g n has been t o d i s g u i s e the v a r i o u s measures as some s o r t o f a package o f d e c i s i o n making e x e r c i s e s .  59 The  f o l l o w i n g i n f o r m a t i o n sheet accompanied the f i r s t  set  of instrumentsi INFORMATION SHEET A STUDY OF INDIVIDUAL DECISION MAKING BY A l f r e d C. Kwong Graduate s t u d e n t , F a c u l t y o f Commerce and B u s i n e s s A d m i n i s t r a t i o n , U n i v e r s i t y o f B.C. As p a r t o f a M a s t e r ' s T h e s i s on t h e development of a D e s c r i p t i v e D e c i s i o n Making Theory, we are a t t e m p t i n g to o b t a i n v o l u n t e e r s f o r the study. Participation w i l l i n v o l v e responses to a s e r i e s of decision-making exerc i s e s and q u e s t i o n n a i r e s and a l l r e s p o n s e s w i l l be kept ANONYMOUS. The v a r i o u s r e s e a r c h i n s t r u m e n t s have been approved by the U n i v e r s i t y S c r e e n i n g Committee and we have o b t a i n e d a C e r t i f i c a t e o f A p p r o v a l f o r Procedures i n Research and Other S t u d i e s I n v o l v i n g Human S u b j e c t s . The e n t i r e s t u d y i n v o l v e s the development o f a package o f B u s i n e s s D e c i s i o n Making measures i n t e n d e d f o r r e s e a r c h i n t o D e c i s i o n Making s t y l e s , p a t t e r n r e c o g n i t i o n , i m p l i c i t h e u r i s t i c s , s t r a t e g y a v a i l a b i l i t y , and D e c i s i o n Making p e r s o n a l i t y c o r r e l a t e s , and a p r e l i m i n a r y a p p l i c a t i o n o f t h e s e i n s t r u m e n t s on a s m a l l e r sample. The package c o n t a i n s t h e f o l l o w i n g i 1. An i n d i v i d u a l q u e s t i o n n a i r e 2. A c h o i c e o f wagers problem 3. An event o c c u r r e n c e and a c t i v i t y i n t e r e s t questionnaire. 4. E x t r e m i t y - C o n f i d e n c e i n Judgment Questions 5. An In-Basket E x e r c i s e 6. "Choice Dilemma" Questions ?. U t i l i t y F u n c t i o n s on a number o f d i m e n s i o n s . A l l i n d i v i d u a l r e s u l t s w i l l be CONFIDENTIAL, a l t h o u g h y o u r own p r o f i l e w i l l be made a v a i l a b l e t o you i f you w i s h i t . S i n c e r e s e a r c h i n s t r u m e n t s may be a d m i n i s t e r e d a t d i f f e r e n t t i m e s , p a r t i c i p a n t s w i l l be asked t o s e l e c t t h e i r own s i x d i g i t code number and use t h i s on a l l o f t h e q u e s t i o n n a i r e s , e t c . , so t h a t we can assemble a l l m a t e r i a l s f o r each r e s pondent. From the p o i n t o f v i e w of p a r t i c i p a n t s , g o i n g t h r o u g h t h e s e r i e s o f e x e r c i s e s and q u e s t i o n n a i r e s w i l l enable them t o i n c r e a s e t h e i r u n d e r s t a n d i n g o f t h e i r own d e c i s i o n making s t y l e s and. p r o f i l e s i n s i t u a t i o n s o f u n c e r t a i n t y and complexity. A l s o , as a l e s s e r inducement, p a r t i c i p a n t s w i l l  60  be g i v e n the o p p o r t u n i t y t o engage i n an a c t u a l c h o i c e o f wagers s i t u a t i o n s where expected w i n n i n g s w i l l be provided. Thank you. We hope you f i n d the s e r i e s o f q u e s t i o n n a i r e s and e x e r c i s e s i n t e r e s t i n g . We f e l t t h a t t h e e n t i r e package, i f g i v e n out a l l a t once, c o u l d be v i e w e d by o u r s u b j e c t s as e x t r e m e l y difficult.  time-consuming and  Guided by t h i s c o n j e c t u r e , the package was d i v i d e d  into three sets i  two "take-home" packages and one " i n t e r a c t i v e "  These are o f the f o l l o w i n g i  package.  Take Home S e t 1 i 1. 2.  Choice Dilemma Q u e s t i o n n a i r e A c t i v i t y I n t e r e s t and Event Occurrence Q.  3.  Extremity-Confidence  i n Judgment  Take Home Set 21 1.  In-Basket  2.  Personal  Records  I n t e r a c t i v e S e t 3» 1.  Utility  Measures  2.  Stock P r i c e Wagers  The v e r b a l i n s t r u c t i o n was t h a t t h e y c o u l d f i l l  out t h e  q u e s t i o n n a i r e s anytime t h e y were f r e e , n o t n e c e s s a r i l y a t one sitting.  The i n t e r v a l between s e t s i s a t l e a s t one week, making  s u r e t h a t t h e s u b j e c t has f i n i s h e d the p r i o r s e t b e f o r e on t o the The present  going  next. i n t e r a c t i v e s e t i s a d m i n i s t e r e d w i t h the  experimenter  because t h e s t o c k p r i c e wagers must be p l a y e d out.  Be-  cause t h e l a s t s e t r e q u i r e s b o t h e x p e r i m e n t e r and s u b j e c t , s e v e r a l s e s s i o n s were h e l d depending upon the a v a i l a b i l i t y o f the s u b j e c t s .  The u t i l i t y i t e m s a r e i n c l u d e d i n t h i s s e t by  c o n v e n i e n c e , as mentioned b e f o r e .  61 D a t a - g a t h e r i n g had been d i f f i c u l t  on t h e p e r s o n a l r e c o r d s  q u e s t i o n n a i r e "because some o f t h e q u e s t i o n s , as viewed by t h e s u b j e c t s , were "too p e r s o n a l " and many f e a r e d t h a t t h e i r anonym i t y was  i n jeopardy.  Instructions  to the Subjects  P r e s e n t e d below a r e t h e i n s t r u c t i o n s t o t h e q u e s t i o n n a i r e s we handed out (except f o r t h e u t i l i t y items w h i c h were b a s i c a l l y question-and-answer form w i t h t h e h e a d i n g U t i l i t y Q u e s t i o n n a i r e and t h e P e r s o n a l Record 1.  Questionnaire).  Choice Dilemma Items I.D.  No.  On t h e f o l l o w i n g pages you w i l l f i n d a s e r i e s o f s i t u a t i o n s t h a t can o c c u r i n b u s i n e s s . The c e n t r a l p e r son i n each s i t u a t i o n i s f a c e d w i t h a c h o i c e between a l t e r n a t i v e courses of a c t i o n . In t h e s e t e n s i t u a t i o n s , t h e c e n t r a l p e r s o n has two alternatives. The outcomes o f one o f t h e a l t e r n a t i v e s may be more a t t r a c t i v e t h a n t h o s e o f t h e second} however, the r e a l i z a t i o n o f t h e s e outcomes i s u n c e r t a i n . F o r each o f t h e t e n s i t u a t i o n s you a r e asked t o i n d i c a t e t h e m i n i mum chance o f s u c c e s s you would demand b e f o r e recommending t h a t t h e u n c e r t a i n a l t e r n a t i v e be chosen. Read each s i t u a t i o n c a r e f u l l y b e f o r e g i v i n g y o u r answer o r judgment. Try t o p l a c e y o u r s e l f i n t h e p o s i t i o n o f t h e c e n t r a l p e r s o n i n each s i t u a t i o n . There a r e t e n s i t u a t i o n s i n a l l ; p l e a s e make y o u r recommendations i n a l l o f them. A l s o , p l e a s e do t h e f o l l o w i n g t a s k J Rank t h e items a c c o r d i n g t o t h e impact of t h e consequences on t h e l i v e s o f t h e c e n t r a l p e r s o n s i n v o l v e d (which means t h a t , g i v e n a l i m i t e d t i m e s c h e d u l e f o r a d v i s i n g , you would want t o o r d e r y o u r appointments f o r t h e s e p e r s o n s i n accordance w i t h t h e e f f e c t s o f t h e d e c i s i o n s on t h e i r l i v e s ) .  62 ITEM  RANK*  1. 2. 3. 4.  5. 6. 7. 8. 9. 10. * G i v i n g the one t h a t would have the g r e a t e s t impact 1, t h e n e x t 2 and so f o r t h down t o the one h a v i n g t h e l e a s t impact r e c e i v i n g a rank o f 10. II.  E x t r e m i t y C o n f i d e n c e i n Judgment  T h i s q u e s t i o n n a i r e w i l l h e l p us f i n d out about p e o p l e ' s o p i n i o n s about v a r i o u s t h i n g s . Each i t e m i n t h e q u e s t i o n n a i r e w i l l d e c i d e a s p e c i f i c event. We want y o u r o p i n i o n as t o how l i k e l y each event i s . A l l o f t h e items i n the t e s t w i l l be o f the form i n w h i c h you e s t i mate the number o f chances out o f 100 t h a t a s p e c i f i c event o c c u r s . Thus, i f you judge an event t o be u n l i k e l y , you'd w r i t e a number c l o s t t o 0; i f you judge an event t o be l i k e l y , you would w r i t e a number c l o s e t o 100; and i f you judge an event t o be about e q u a l l y l i k e l y o r u n l i k e l y , you would w r i t e a number c l o s e t o 50. We a l s o want you t o i n d i c a t e how s u r e you are o f y o u r o p i n i o n s . So, a f t e r you have d e c i d e d how l i k e l y an event i s we want you t o i n d i c a t e how c o n f i d e n t you a r e o f t h i s judgment by c i r c l i n g one o f the 5 c a t e g o r i e s below each q u e s t i o n . i  P l e a s e do not s k i p any I I I . Event Occurrence and  questions.  A c t i v i t y I n t e r e s t Questionnaire t  T h i s i s a q u e s t i o n n a i r e t o f i n d out t h e way i n w h i c h c e r t a i n i m p o r t a n t events i n our s o c i e t y a f f e c t d i f f e r e n t people. Each i t e m c o n s i s t s of a p a i r o f a l t e r n a t i v e s l e t t e r e d a o r b. P l e a s e s e l e c t t h e one statement o f each p a i r (and o n l y one) w h i c h you more s t r o n g l y b e l i e v e t o be t r u e r a t h e r t h a n one you t h i n k , you s h o u l d choose o r t h e one you would l i k e t o be t r u e . T h i s i s a measure o f p e r s o n a l b e l i e f s i t h e r e are no r i g h t o r wrong answers.  obviously,  63  P l e a s e answer t h e s e items on t h i s i n v e n t o r y c a r e f u l l y h u t do n o t spend t o o much time on any one i t e m . Be s u r e t o f i n d an answer t o every i t e m . In some c a s e s , you may d i s c o v e r t h a t you b e l i e v e b o t h s t a t e m e n t s o r n e i t h e r one t o be t r u e . I n such c a s e s , be s u r e t o s e l e c t t h e one y o u more s t r o n g l y b e l i e v e t o be t h e case as f a r as you a r e concerned. A l s o , t r y t o respond t o each i t e m i n d e p e n d e n t l y when making y o u r c h o i c e ; do n o t be i n f l u e n c e d by p r e vious choices. IV.  I n Basket  Exercise;  P l e a s e do t h i s work i n y o u r room which w i l l become y o u r " p r i v a t e o f f i c e " f o r f o r t y m i n u t e s . You w i l l work as i f y o u were B i l l B i c k n e r , V i c e - P r e s i d e n t , North American O p e r a t i o n s o f t h e M u l t i n a t i o n a l P r o d u c t s I n t e r n a t i o n a l Co. You j u s t a r r i v e d i n t h i s new j o b , h a v i n g come from t h e C o n n e c t i c u t s u b s i d i a r y where y o u were i t s p r e s i d e n t . Your p r e d e c e s s o r , Mr. James Norton, d i e d o f a h e a r t a t t a c k l a s t week. You were n o t i f i e d v e r y r e c e n t l y of t h i s new assignment and have had l i t t l e t i m e t o become acquainted with the job. Today i s Wednesday, May 14, 1972. You have j u s t a r r i v e d i n t h e o f f i c e a t 7»45 p.m. and must l e a v e p r o m p t l y at 8t25 p.m. t o c a t c h t h e 9»30 p l a n e t o Mexico C i t y f o r an i m p o r t a n t meeting. You w i l l n o t be back u n t i l Thursday, May 23, 1972. The m a t e r i a l s i n t h e package were l e f t i n y o u r i n b a s k e t on y o u r desk by y o u r s e c r e t a r y . You a r e t o go t h r o u g h t h e e n t i r e p a c k e t o f m a t e r i a l s by r e a d i n g them and t a k i n g whatever a c t i o n you deem a p p r o p r i a t e on each i t e m . S i n c e y o u r a s s i s t a n t w i l l t a k e charge o f t h e a c t u a l d r a f t i n g o f t h e l e t t e r s and as t h e r e i s l i t t l e t i m e f o r you t o w r i t e t h e s e f o r m a l l y , every a c t i o n y o u w i s h t o t a k e s h o u l d be w r i t t e n down i n note form o r i n w i r e s , where a p p r o p r i a t e , e i t h e r t o y o u r s e l f , t o y o u r a s s i s t a n t o r t o t h e p e r s o n concerned. Be s u r e t o i n d i c a t e i n t h e n o t e s and/or w i r e s t o whom t h e y a r e a d d r e s s e d . P l e a s e w r i t e t h e note and/or w i r e s on t h e e n c l o s e d Memo sheets. You a r e t o u s e y o u r own e x p e r i e n c e as t h e b a s i s o f y o u r a c t i o n i n assuming t h e r o l e o f B i l l B i c k n e r . NOTE'. .. THE DAY I S WEDNESDAY, MAY 15, 1972. TIME» 7>45 P.M. THE TELEPHONE SWITCHBOARD I S CLOSED.  64 WRITE DOWN EVERY ACTION YOU TAKE ON ANY ITEM. YOU CANNOT CALL ON ANYONE FOR ASSISTANCE. YOU MUST WORK WITH THE MATERIALS AT HAND. YOU WILL BE OUT OF OFFICE FROM 8t25 UNTIL NEXT THURSDAY MAY 23, 19?2. YOU CANNOT TAKE ANY OF THE MATERIALS WITH YOU ON THE TRIP. BE SURE TO RECORD EVERY ACTION P l e a s e do y o u r work i n t h e f o l l o w i n g o r d e r g i v e n below. You w i l l have 40 minutes f o r q u e s t i o n 1 and 10 minutes f o r q u e s t i o n s 2, 3, and 4. 1. P l e a s e c a r e f u l l y r e a d t h e correspondence and w r i t e y o u r response t o each o f t h e 7 items on t h e e n c l o s e d Memo s h e e t s . 2. A f t e r you have w r i t t e n a response t o a l l 7 i t e m s , p l e a s e t u r n t o t h e Q u e s t i o n n a i r e f o r m C b l u e c o v e r page). The f i r s t q u e s t i o n asks you t o f i r s t rank the 7 items i n terms o f importance ( i . e . , t h e s e r i o u s n e s s o f t h e p o s s i b l e consequences). T h i s can be done by s o r t i n g y o u r w r i t t e n memos i n o r d e r o f importance. Next you a r e asked t o r a t e each o f the i t e m s . This s h o u l d be done by g i v i n g t h e most i m p o r t a n t i t e m 100 p o i n t s and t h e n g i v i n g t h e o t h e r 6 items p o i n t s on the b a s i s o f how t h e y s t a n d i n r e l a t i o n t o t h i s . Please place t h i s r a t i n g number on the t o p r i g h t - h a n d c o r n e r o f each o f the 7 memos. 3. A f t e r you have r a t e d t h e 7 i t e m s , r e a d P a r t B o f the Q u e s t i o n n a i r e . T h i s asks f o r t h e s w i t c h - o v e r chance between a l t e r n a t i v e s f o r f o u r o f t h e i t e m s . 4. A f t e r P a r t B, r e a d and complete P a r t C o f the Q u e s t i o n n a i r e w h i c h asks f o r a d e s c r i p t i o n o f some o f the correspondents. V.  Wagers on Stock P r i c e s The p r i n t e d i n s t r u c t i o n s were as f o l l o w s i  On t h e next few pages you w i l l be p r e s e n t e d w i t h s e t s o f o p t i o n s . The s e t s a r e l a b e l l e d A, B, C, D and E. In each set. t h e r e a r e 5 o p t i o n s and you w i l l be asked t o s e l e c t t h e one o p t i o n you most p r e f e r i n each s e t . In each s e t one o f the o p t i o n s i s r e c e i v i n g $2 f o r s u r e , w h i l e t h e o t h e r f o u r o p t i o n s a r e wagers and i n v o l v e a.chance o f w i n n i n g more t h a n $2, but u s u a l l y a chance o f l o s i n g money t o o . The chance o f w i n n i n g i s shown f o r each wager. I n s e t A, B, and E each o f t h e  65 o p t i o n s has expected w i n n i n g s o f $2. ( T h i s means t h a t i f any one was p l a y e d a l a r g e number o f t i m e s the w i n n i n g s would average out t o $2 p e r t i m e . ) In s e t s G and D, t h e expected w i n n i n g s a r e d i f f e r e n t f o r each o p t i o n and a r e shown t h e r e . We want you t o t h i n k t h r o u g h t h e o p t i o n s i n each set and t o s e l e c t the one you most p r e f e r . A f t e r you have done t h i s f o r a l l t h e s e t s , we s h a l l s e l e c t a s e t at random and t h e n p l a y out the o p t i o n you chose i n t h a t s e t . I f t h e r e s u l t i s t h a t you w i n money, we w i l l pay you i m m e d i a t e l y , w h i l e i f t h e r e s u l t i n d i c a t e s t h a t you l o s e money we expect immediate payment from you. A l l the wagers a r e based on t h e f r a c t i o n a l p a r t o f the p r i c e s o f f i v e s t o c k s on t h e New York Stock Exchange. You w i n i f t h e f r a c t i o n a l amount o f a s t o c k ' s p r i c e i s 1/8, 3/8 o r 5/8 w h i l e you l o s e i f the f r a c t i o n a l amount i s 1/4, 1/2, 3/4, 7/8 o r a whole number. S t u d i e s o f t h e s t o c k market have shown t h a t no one ending amount i s more l i k e l y t h a n any o t h e r f o r s t o c k s i n the p r i c e range we s h a l l c o n s i d e r . The wagers i n each s e t d i f f e r i n t h e number o f s t o c k s out o f the f i v e t h a t must have t h e w i n n i n g f r a c t i o n a l amounts. As t h e number i n c r e a s e s from "at l e a s t 1 out o f 5" "to "at l e a s t 4 out o f 5", "the chances o f w i n n i n g g e t s m a l l e r w h i l e the p a y o f f s get l a r g e r . We have a page l i s t i n g 100 s t o c k s a c t i v e l y t r a d e d on t h e New York Stock Exchange. They were chosen r a n domly from s t o c k s under $50. The f i v e s t o c k s t o be used i n d e t e r m i n i n g t h e p a y o f f s w i l l be s e l e c t e d r a n domly. The f r a c t i o n a l p r i c e we s h a l l use i s the one f o r t h e s e s t o c k s a t t h e c l o s e o f t r a d i n g on September 8,  1972.  Because t h e r e were c e r t a i n r e s e a r c h q u e s t i o n s we wanted t o c l a r i f y , v e r b a l i n s t r u c t i o n s amended t h e p r i n t e d q u e s t i o n n a i r e i n s t r u c t i o n s and were as  followsi  " I n s t e a d o f s e l e c t i n g j u s t one o p t i o n i n each s e t , p l e a s e rank the o p t i o n s i n the s e t s a c c o r d i n g t o y o u r p r e f e r e n c e . A l s o a f t e r you've done t h a t f o r a l l the s e t s , rank the s e t s now  according to your preference.  The method o f s e l e c t i n g the  set  and the o p t i o n w i l l be based on y o u r p r e f e r e n c e . "  66 The l a s t s e n t e n c e had been l e f t vague because t h e r e i s a f e a r , on t h e e x p e r i m e n t e r ' s his  p a r t , t h a t once t h e s u b j e c t made  f i r s t c h o i c e , he would rank t h e r e s t h a p h a z a r d l y .  This  l a s t sentence would make t h e s u b j e c t b e l i e v e t h a t the way r a n k e d h i s p r e f e r e n c e s would a f f e c t t h e way  the option  he  was  selected. In p l a y i n g out t h e o p t i o n , o f c o u r s e , t h e " t o p "  choice  would be u s e d , except i n t h e case where Set C ( i n c r e a s i n g exp e c t e d w i n n i n g s as p r o b a b i l i t y o f w i n n i n g as t h e f i r s t c h o i c e .  The r e a s o n g i v e n was  stands t o l o s e more i f s e t C i s p l a y e d  i n c r e a s e s ) was t h a t "the  experimenter  out."  Because some o f t h e s u b j e c t s knew the e x p e r i m e n t e r a l l y , i t was  f e l t t h a t t h i s c o u l d a f f e c t the way  t h a t much  from A l f r e d c o n s i d e r i n g t h a t he i s u s i n g money from h i s  t h e way  The was  person-  t h e y chose  t h e i r b e t s — i . e . , t h a t "they wouldn't want t o 'win*  pocket."  chosen  own  o n l y method t o g e t t h i s u n d e s i r a b l e e f f e c t out  of  t o say t h a t t h e money came from the r e s e a r c h funds  o f the I n d u s t r y , Trade & Commerce Department (see Acknowledgment ).  The money i n the d e n o m i n a t i o n o f two's was  placed i n  f r o n t o f t h e s u b j e c t s i n o r d e r t o g i v e t h e s e s s i o n more authenticity. Conclusion The  s t u d y was  c a r r i e d out o v e r a five-week  period.  The a n a l y s i s t h a t i s t o f o l l o w i s based on t h e s e 35  subjects.  On the w h o l e , 35 i s not such a l a r g e sample nor can one c a l l sampling  random.  However, g i v e n the amount o f t i m e needed t o  the  67 r e a d t h r o u g h t h e items and respond t o t h e q u e s t i o n n a i r e s , t h e sample o f 35 s u b j e c t s i s not c o n s i d e r e d bad. dom"  s a m p l i n g d e s i g n was  Even though " r a n -  o r i g i n a l l y c o n c e i v e d , under  practical  c i r c u m s t a n c e s , f r u i t i o n o f our i d e a was not p o s s i b l e due t o t h e "voluntary" aspects of the study.  68  CHAPTER 6 AN ANALYSIS OF THE AND ITEMS IN THE  MEASURES PACKAGE  Overview Because o f the number o f q u e s t i o n n a i r e s voluminous amount o f a n a l y s i s may ponses.  administered, a  be u n d e r t a k e n on the  res-  However, b r e v i t y d i c t a t e s t h a t o n l y a n a l y s i s r e l a t i n g  to centrally-important  q u e s t i o n s s h o u l d be  presented.  For t h e i n d i v i d u a l measures, the a n a l y s i s i n t h i s c h a p t e r i s p r e s e n t e d w i t h the f o l l o w i n g  subsectionsi  A.  S c o r e ( s ) - r e i t e r a t e s how the s c o r e ( s ) o f the naire is/are derived.  B.  D i s t r i b u t i o n ( s ) - shows the frequency, d i s t r i b u t i o n ( s ) o f the s c o r e ( s ) computed i n A, and the i m p l i c a t i o n s they c a r r y .  C.  Item D i s t r i b u t i o n ( s ) - p r e s e n t s the f r e q u e n c y d i s t r i b u t i o n (s) o f i t e m ( s ) whose r e s p o n s e s a r e d i s t r i b u t e d i n an i n t e r e s t i n g way.  D.  Item A n a l y s e s - d i s c u s s e s e i t h e r the i n t e r c o r r e l a t i o n s o f items w i t h each o t h e r o r c o r r e l a t i o n ( s ) o f the items w i t h the aggregate s c o r e ( s ) and the reasons b e h i n d the r e s u l t s .  E.  I s s u e s c o n c e r n i n g measures - examines some o f the r e s e a r c h q u e s t i o n s posed by p a s t r e s e a r c h e r s and the i s s u e s r a i s e d by the t h e s i s .  F.  Q u a l i t a t i v e A n a l y s e s - p r e s e n t s some comments o f the s u b j e c t s i n response t o the measure. ( O p t i o n a l as t h i s may not be r e l e v a n t . ) Because o f t h e u n i q u e n e s s o f the sample and  subjects s t u d y may  question-  the way  the  were s e l e c t e d , g e n e r a l i z a t i o n from the r e s u l t s of t h i s not be p o s s i b l e .  But,  'confirmation'  and/or r e j e c t i o n s  69  o f t h e v a r i o u s c o n c l u s i o n s posed by p a s t r e s e a r c h e r s as t h e y s t a n d w i t h o u r group a r e i n themselves i n t e r e s t i n g . In Basket A.  Three s c o r e s a r e d e r i v e d from t h e q u e s t i o n n a i r e .  The  Memo s c o r e , w h i c h i s t h e average o f t h e ' s t r a t e g y ' s c o r e t h e s u b j e c t r e c e i v e s i n each i t e m , may be generated  i n t h r e e ways.  The minimum odds s c o r e , w h i c h i s t h e mean o f t h e minimum odds s u b j e c t s a s s i g n e d t o t h e i t e m s , may be g e n e r a t e d  i n two ways.  The semantic d i f f e r e n t i a l s c o r e i s j u s t t h e sum o f t h e f o u r semantic d i f f e r e n t i a l sub-scores  (see Chapter 4 ) .  The codes f o r t h e s t r a t e g i e s i m p l i e d by t h e s u b j e c t s ' responses aret  1 f o r t a k i n g the r i s k y a l t e r n a t i v e uncondition-  a l l y , 2 f o r t a k i n g t h e r i s k y a l t e r n a t i v e under c e r t a i n stances, 2  f  o  r  circum-  taking the conservative a l t e r n a t i v e i f c e r t a i n  c o n d i t i o n s were met, 4 f o r t a k i n g t h e c o n s e r v a t i v e a l t e r n a t i v e u n c o n d i t i o n a l l y , _\ f o r g a t h e r i n g i n f o r m a t i o n and 6 f o r d e l a y . A v a l u e o f 9 i s a s s i g n e d t o r e s p o n s e s t h a t a r e not r i s k r e l e v a n t — i . e . , o r g a n i z a t i o n a l c o n s i d e r a t i o n , happiness,  e t c . I n gener-  a t i n g t h e t h r e e p o s s i b l e memo s c o r e s , a l l 9 ' s a r e e x c l u d e d .  The  d i f f e r e n c e o f t h e s e t h r e e memo s c o r e s l i e s i n t h e t r e a t m e n t o f the 5 ' s and 6 ' s . I f d e l a y and g a t h e r i n g more i n f o r m a t i o n a r e more r i s k averse acts than t a k i n g t h e conservative a l t e r n a t i v e , then the memo s c o r e s h o u l d i n c l u d e them as 5's and 6 ' s .  However, one  can argue t h a t d e l a y and g a t h e r i n g i n f o r m a t i o n a r e more r i s k prone s t r a t e g i e s , and t h a t they s h o u l d l i e between 2 and 3  70 ( i . e . , more r i s k - a v e r s e : t h a n t a k i n g t h e r i s k y a l t e r n a t i v e cond i t i o n a l l y and more r i s k - p r o n e t h a n t a k i n g t h e c o n d i t i o n a l conservative alternative).  Another c o n t e n t i o n i s t h a t s i n c e we do  not know about d e l a y and more i n f o r m a t i o n g a t h e r i n g , and t h e i r r i s k t a k i n g i m p l i c a t i o n s , t h e s e s t r a t e g i e s s h o u l d be e x c l u d e d from t h e c a l c u l a t i o n o f t h e aggregate memo s c o r e . S i n c e we a r e n o t s u r e o f where t h e d e l a y and i n f o r m a t i o n g a t h e r i n g s t r a t e g i e s l i e i n t h e r i s k t a k i n g continuum, an aggreg a t e s c o r e w h i c h excludes  them i s r e l i e d upon as t h e memo s c o r e .  However, as a d d i t i o n a l a n a l y s i s i n p u t s , two o t h e r memo s c o r e s are g e n e r a t e d .  One i s t o i n c l u d e t h e s e s t r a t e g i e s as 5's and  6's; a n o t h e r i s t o t r e a t them as 2.5's. The minimum odds s c o r e may e i t h e r be g e n e r a t e d as a s i m p l e average o f t h e odds s u b j e c t s a s s i g n e d  i n t h e items o r an average  o f t h e odds u s i n g t h e grades a s s i g n e d as w e i g h t s .  The former i s  r e l i e d upon as t h e s c o r e because t h e grades may n o t t u r n out t o be r e l i a b l e as w e i g h t s .  I n t h e l a t e r s u b s e c t i o n s , we w i l l  dis-  cuss what s c o r e s a r e r e t a i n e d . B.  F i g u r e 6-1 g i v e s us a breakdown o f t h e memo s c o r e s  (5's and 6*s e x c l u d e d ) and t h e i r  frequency.  The mean o f t h e memo s c o r e s i m p l i e s t h a t t h e s u b j e c t s ' s t r a t e g y u s u a l l y i s between t a k i n g a r i s k y a l t e r n a t i v e p r o v i d e d  cer-  t a i n c o n d i t i o n s a r e met and t a k i n g a c o n s e r v a t i v e a l t e r n a t i v e i f c e r t a i n circumstances  c o u l d be changed.  However, t h e 2.35 r e s u l t  can be e n t e r p r e t e d as u s u a l l y t a k i n g t h e c o n d i t i o n a l r i s k y n a t i v e i f one c o n s i d e r s t h e d i s t a n c e .  alter-  Only one s u b j e c t p r e f e r s  t h e c o n s e r v a t i v e a l t e r n a t i v e u n c o n d i t i o n a l l y t h r o u g h o u t t h e items as i n d i c a t e d by t h e f o l l o w i n g f i g u r e .  71 PIG.  6-1  H i s t o g r a m , Aggregate  Memo Scores  No. of Subjects  31.+% 10  2S.7%  9  2O.0% "7  172%  £ 5  Z9% 0  i  1-33  Mean i - 2 . 3 5 8 Range* 2 . 3 3 Variance 1 0.201 Median 1 2 . 2 9 Fig.  2.9% 1.67  2.33  2.67  3.33  4  367 Memo Score  monz risk aw-nse  6 - 2 i l l u s t r a t e s how t h e aggregate minimum odds s c o r e s  are d i s t r i b u t e d .  The group would on t h e average a c c e p t t h e  r i s k y p r o p o s a l s i f t h e minimum odds f o r s u c c e s s were 6 out o f 1 0 , a l i t t l e b e t t e r t h a n t h e odds o f f e r e d i n a c o i n t o s s .  72 FIG.  6-2  H i s t o g r a m , Minimum Odds Scores  No. of Subjects  30.3% 30.3%  10  9.1% 6.1%  1.5  3.5  4.5  5.5  65  7.5  8.5  iflore. nsV?-averse.  Meani 5-752 Mediant 5.9 Rangei $,±k Variancei 1.48  • 9  i  ' Mi .oda 5  M  (oof of  F i g u r e 6-3 i l l u s t r a t e s how t h e s e m a n t i c d i f f e r e n t i a l scores are d i s t r i b u t e d .  I t s h o u l d be n o t e d t h a t t h e S.D.  10)  (S.D.) score  i s the value assigned t o a subject's perception of the r i s k a v e r t e r s i n t h e items  (where t h e r i s k t a k e r s a r e a s s i g n e d as  n e g a t i v e r i s k a v e r t e r s i f they happen t o be t h e h y p o t h e t i c a l letter writers).  73 6-3  FIG. Histogram,  S.D.  Scores  No. of Subjects  33.394 10  24.1%  6.1% 3% -IOO  ¥  90  3% -70  -50  36  Meani -12.441 V a r i a n c e ! 791.04 R a n g e i . 152 Mediant -11.00  -10  tO  3o  50  lO  •W-  wore nafc averse  SD Scores  The mean S.D. s c o r e i n d i c a t e s t h a t r i s k t a k e r s a r e p e r c e i v e d i n a p o s i t i v e manner, o r r i s k a v e r t e r s i n a n e g a t i v e way. T h i s i s a rough c o n f i r m a t i o n o f t h e r i s k - t a k i n g - a s - a - v a l u e conclusion of the past.  However, t h e spread o f t h e d i s t r i b u t i o n ,  i f t a k e n i n t o aecount, i n d i c a t e s t h a t t h e degree o f f a v o r a b l e o r u n f a v o r a b l e assessment o f r i s k t a k e r s v a r i e s from one assessor to the other.  74  As i n d i c a t i o n o f t h e s e r i o u s n e s s o f t h e consequences i m p l i e d by t h e r i s k y a l t e r n a t i v e i n each i t e m , t h e s u b j e c t s a s s i g n e d "grades"  (numbers out o f 100) t o t h e i t e m s .  An a v e r -  age grade assignment i s g e n e r a t e d and t h e d i s t r i b u t i o n i s shown in Fig.  6-4.  FIG.  6-4  Histogram, Average Grade A s s i g n e d t o t h e Items  No. of Subjects  to  32.2% 32.2.%  1*3%  3.5%  If*  Meani  3.5%  4A  * ^  m  —  67.74  Median 1 69.8 Range 1 65.7 Variances 15«86  The o c c u r r e n c e o f one s c o r e a t t h e 10-20 l e v e l  Average. Grade  Assigned.  suggests  t h a t t h i s s u b j e c t f a i l e d t o f o l l o w i n s t r u c t i o n s when a s s i g n i n g  >  75 grades.  The t i g h t n e s s o f t h e d i s t r i b u t i o n , e x c l u d i n g t h e  extreme 10-20 one, i n d i c a t e s r o u g h l y t h a t t h e s u b j e c t s converge i n s e v e r i t y p e r c e p t i o n . C.  Table I g i v e s us a breakdown o f s t r a t e g y s c o r e s by  items and t h e f r e q u e n c y o f t h e s e s c o r e s . TABLE I Memo Scores By Item, R e l a t i v e Frequency and Median  ^\  Item No.  Value  \^  1 2 3 4 5 6. 9 Medians  6 -  "1  2  3  4  5  Rel. Freq.  R.F.  R.F.  R.F.  R.F.  R.F.  R.F.  5.7 2.9 5.7 74.3 8.6 0.0 2.9  51.4 8.6 0.0 5.7 20.0 0.0  37.1 2.9 5.7 34.3 8.6 0.0 11.4  45-7$ 17.1 0.0 22.9 11.4 2.9 0.0 1.875  26.5$ 14.7  0.0 17.6 2.9 0.0 38.2  3.750  48.6  11.4 5.7 20.0 5.7 5.7 2.9  17.1 28.6  17.1 17.1 11.4 0.0 8.6  1.625  2.75  3.9-81  14.3  1.472  7  3.625  I f we a r e t o i n f e r r i s k t a k i n g a t t i t u d e s from t h e s t r a t e g i e s recommended, items t h a t e l i c i t non r i s k c o n s i d e r a t i o n s h o u l d be subject to correction or elimination.  Item 2, c o n c e r n i n g t h e  son's d e s i r e t o e n t e r i n t o a r i s k y c a r e e r , e l i c i t e d  responses  l i k e "Do what you're happy i n , " " I f t h a t ' s what you want, go ahead," e t c . , and has t h e l a r g e s t f r e q u e n c y o f 9's among a l l the items. Item 6, c o n c e r n i n g t h e p o s s i b i l i t y o f m a r k e t i n g a new p r o d u c t , has t h e l o w e s t median and t h e l a r g e s t f r e q u e n c y i n t h e  76  r i s k - t a k i n g s t r a t e g y score c l a s s .  The i n c l i n a t i o n o f t h e sub-  j e c t s i s t o open up markets f o r new p r o d u c t s even though t h e r i s k i s great. As f a r as d e l a y i s concerned,  o n l y items 1 and 3 ("the  f i r s t i t e m c o n c e r n i n g a p o s s i b l e c o u r t s u i t and t h e l a t t e r , t h e p o s s i b i l i t y o f n o t s u p p l y i n g a s t e a d y customer i n p r e f e r e n c e o f a new u n s t a b l e b u y e r ) e l i c i t e d t h e d e l a y s t r a t e g y .  Responses  l i k e " w a i t u n t i l I r e t u r n " o r " t e l l him I ' l l t a l k t o him l a t e r " a r e coded as d e l a y . Items 6 , 1, and 4 e l i c i t e d g a t h e r i n g - i n f o r m a t i o n s t r a t e g i e s . The t a b l e r e v e a l s t h i s c l e a r l y .  As we s a i d b e f o r e , i t e m 6's  median i s t h e l o w e s t among t h e o t h e r i t e m s ; b u t some s t u d e n t s f e e l t h a t t h e y s h o u l d n o t t r y t h e new p r o d u c t out u n t i l more i n f o r m a t i o n can be s e c u r e d . students  Item 1 a l s o i s deemed by some  (11.4$) t o r e q u i r e more i n f o r m a t i o n b e f o r e any a c t i o n  i s taken.  E l e v e n p e r c e n t o f t h e s u b j e c t s a l s o recommend g e t t i n g  more i n f o r m a t i o n b e f o r e t a k i n g any a c t i o n — e i t h e r r e c a l l i n g t h e Time and Motion man who had o f f e n d e d t h e Union o r c o n t i n u i n g the study. In i t e m 5, B i c k n e r i s b e i n g asked by h i s f r i e n d t o q u i t h i s j o b and j o i n him i n a r i s k y v e n t u r e .  Here, t h e s u b j e c t s  f e e l t h a t B i c k n e r , b e i n g a l r e a d y s e c u r e i n t h e company, s h o u l d s t a y on. tive  Thus, a m a j o r i t y o f t h e s u b j e c t s f a v o r t h e c o n s e r v a -  alternative. D.  As r e v e a l e d by Table I I , t h e i n t e r - i t e m c o r r e l a t i o n s  o f t h e memo s c o r e s a r e v e r y poor.  This suggests t h a t the s t r a -  t e g y employed v a r i e s v e r y much, and t h a t t h e c o n v e r s i o n o f  77 s t r a t e g y recommendations i n t o s c o r e s may be i n c o n s i s t e n t .  This  s u g g e s t i o n i m p l i e s t h a t the method o f judging the r i s k t a k i n g a t t i t u d e s o f the s u b j e c t s might have been  inadequate.  Table I I I g i v e s us an i d e a o f t h e minimum odds a s s i g n e d i n each item and t h e i r r e l a t i o n s h i p s w i t h the aggregate items are c o r r e l a t e d w i t h the aggregate  score. A l l  score but the i n t e r - i t e m  c o r r e l a t i o n s are very poor. TABLE I I C o r r e l a t i o n Matrix, Memo Scores by Item Item No.  2  1  3  4  5  6  Ag. Memo Sc.  7  (-.426) -0.067 - . 2 3 .22 - . 2 7 -0.07 -.08 .22 (- .44) .32 .15 - . 1 3 -.12 - . 2 9 .05 .20 (-.36) .08 -.29 .15 -.28  1 2 3 4 5 6 7 Ag. Memo Sc.  .254 .247 (.33) (.424) .14 .08 (.51)  C o e f f i c i e n t s enclosed:' i n p a r e n t h e s i s are s i g n i f i c a n t (p^0.05).  TABLE I I I C o r r e l a t i o n Matrix Minimum Odds Scores by Item Item No. 1 2 3 4 5 6 7  1  2  3  4  5  6  7  .12 .08 -.14 (.46) (.35) -0.019 (.37) -.14 -.004 (.38) - . 2 0 (.38) - . 0 1 3 (.48) .12 .05 (.33) .24 .17 .03 .02  Ag.  Score  (.429) (.471) (.758) (.616) (.29) (.63) (.37)  C o e f f i c i e n t s e n e l o s e d i n p a r e n t h e s i s are s i g n i f i c a n t (p<0.05).  78 Item* 5 i s "by f a r the weakest i n c o r r e l a t i o n w i t h t h e aggregate score.  Because i t a l s o f a i l e d t o d i s c r i m i n a t e i n t h e  t e g y r e s p o n s e s ( w i t h 74$ recommending t a k i n g the  stra-  conservative  a c t i o n ) t h i s i s an i t e m t h a t s h o u l d be removed. Table IV g i v e s us t h e i n t e r c o r r e l a t i o n s o f the semantic d i f f e r e n t i a l scores.  The  Aggregate S.D.  score c o r r e l a t e s h i g h l y  w i t h each o f the S.D.  s c o r e s but the i n t e r - n u m b e r c o r r e l a t i o n s  t u r n out t o be weak. TABLE IV Correlation Matrix Semantic D i f f e r e n t i a l Scores Number  Moore  Moore Paul Taylor Kaye ._. S.D. Score  Paul -0.09  Taylor  .17  -.182  Kaye  (-.33) -.004  (.32)  C o e f f i c i e n t s e n c l o s e d i n p a r e n t h e s i s are a t 0.05 level.  The  item analyses  f o r t h e In-Basket  t i o n n a i r e s h o u l d somehow be r e v i s e d .  Ag. S.D.  Score  (.437) (.789) (.615)  (.382) significant  r e v e a l t h a t the ques-  The r e s u l t i n g weak i n t e r -  i t e m c o r r e l a t i o n s suggest t h a t the v a l i d i t y o f the items i s questionable. T h i s q u e s t i o n n a i r e , we have t o remember, r e q u i r e s t h e l a r g e s t p r o p o r t i o n o f response t i m e .  Although we have c r e a t e d  i n t e r e s t i n g s i t u a t i o n s i n each of t h e i t e m s , t h e amount o f t i m e and e f f o r t i n v o l v e d might i n d u c e boredom. The  s o l u t i o n i s t o cut down t h e number o f items and f u r t h e r  s y s t e m a t i z e t h e s t r a t e g y s c o r i n g method.  79 The memo s c o r e s we have g e n e r a t e d have n o t been s a t i s f a c tory.  I t s v a l u e as a r i s k measure i s thus m i n i m a l .  However,  we a r e n o t r e j e c t i n g t h e v a l u e o f i n f e r r i n g r i s k t a k i n g a t t i tudes from s t r a t e g y ; we a r e s a y i n g t h a t t h e r e c o u l d be somet h i n g wrong i n our method o f j u d g i n g t h e memos. E.  I n o r d e r t o a s c e r t a i n w h i c h o f t h e memo s c o r e s  (i.e.,  how t h e 5's and 6's s h o u l d be t r e a t e d ) , s h o u l d be r e t a i n e d , t h e r e l a t i o n s h i p o f t h e t h r e e s c o r e s w i t h t h e minimum odds s c o r e i s examined.  The memo s c o r e t h a t e x c l u d e s t h e 5's and 6's has t h e  h i g h e s t c o r r e l a t i o n ( r = 0.186) w i t h t h e minimum odd s c o r e (the r ' s o f t h e second s c o r e w h i c h i n c l u d e s 5's and 6's and t h e t h i r d s c o r e w h i c h t r e a t s 5's and 6 s as 2 . 5 ' s a r e , r e s p e c t i v e l y ! f  -0.126 and 0.176).  However, t h e c o r r e l a t i o n i s n o t s i g n i f i c a n t  at t h e 0;05 l e v e l . The weighted minimum odds s c o r e , w h i c h i s g e n e r a t e d by u s i n g t h e grades s t u d e n t s a s s i g n e d as w e i g h t s , i s d e l e t e d because o f i t s weak c o r r e l a t i o n w i t h t h e memo s c o r e ( r = .103) and w i t h t h e Aggregate Semantic D i f f e r e n t i a l Score  ( r = .09).  T h i s s c o r e i s a l s o found t o be u n r e l a t e d t o t h e o t h e r r i s k measures l i k e Choice Dilemma ( r = -0.015), Stock P r i c e Wager Score  ( r = 0.08), and Compensation U t i l i t y Score  ( r = 0.012).  The Semantic D i f f e r e n t i a l Score has no s i g n i f i c a n t s h i p w i t h t h e o t h e r In-Basket r i s k measures.  relation-  I t has a 0.127  w i t h t h e memo s c o r e and a 0.0^7 w i t h t h e average odd s c o r e . Item-wise,  t h e Semantic D i f f e r e n t i a l Score f o r T a y l o r (the  m a r k e t i n g manager who d i d n ' t l i k e p u s h i n g new, u n t r i e d p r o d u c t s )  80 i s t h e l o w e s t i n mean (-0.206). f i n d Taylor unfavorable and c a u t i o u s . and s t r o n g .  T h i s i m p l i e s t h a t the  subjects  and c o n s i d e r him weak, dependent, u n s u r e  Johnny Kaye i s viewed as independent, c o n f i d e n t He i s t h u s p e r c e i v e d i n t h e most p o s i t i v e way  (mean  = 16.94). However, from t h e r e s u l t s of the c o r r e l a t i o n o f Semantic D i f f e r e n t i a l Scores w i t h o t h e r r i s k measures, we have t o conc l u d e t h a t t h i s s c o r e may score.  not be c o n s i d e r e d as a r i s k t a k i n g  There i s no c l e a r - c u t i n d i c a t i o n t h a t an i n d i v i d u a l  v i e w s r i s k t a k e r s i n t h e most f a v o r a b l e way  who  i s himself a r i s k  taker. For each s u b j e c t , t h e c o r r e l a t i o n between grade assignment and t h e average minimum odds i s d e r i v e d as a p r e l i m i n a r y i n q u i r y i n t o the s e v e r i t y o f consequences i s s u e . Because t h e s u b j e c t s are asked t o a s s i g n grades (out o f a maximum o f 100)  t o t h e items as i n d i c a t i o n s of t h e g r a v i t y o f  t h e consequences, t h e h y p o t h e s i s  i s t h a t the h i g h e r the grade  a s s i g n e d , t h e h i g h e r would be t h e minimum a c c e p t a b l e chance bef o r e the u n c e r t a i n a l t e r n a t i v e i s undertaken. Of the 28 s u b j e c t s who  have complete grade a s s i g n m e n t s ,  have n e g a t i v e c o r r e l a t i o n c o e f f i c i e n t s  ( r a n g i n g from -0.44  -0.0?) and 18 have p o s i t i v e v a l u e s ( r a n g i n g from 0.85 but o n l y 3 have s i g n i f i c a n t r * s  to  t o 0.056)  ( r > 0.722, d f = 6, p" ^ 0.05).  Thus, f o r most p e o p l e , the s e v e r i t y o f consequence does not  10  5  hypothesis  hold.  The p o s s i b i l i t y t h a t p e o p l e a s s i g n i n g h i g h e r grades t e n d t o r e q u i r e h i g h e r minimum odds i s examined as an a d j u n c t t o t h e  81 s e v e r i t y o f consequence i s s u e .  The  t i v e , i s not s i g n i f i c a n t a t t h e 0.05 F.  The  c o r r e l a t i o n , although p o s i level  ( r = 0.26).  comments s u b j e c t s gave a f t e r the In-Basket  was  a d m i n i s t e r e d suggest t h a t the l e n g t h o f t i m e i n d i c a t e d on q u e s t i o n n a i r e i s not a c c u r a t e . took 2 hours t o f i n i s h .  the  Some s u b j e c t s mentioned t h a t i t  Others f e l t t h a t the 45 minutes i n d i -  c a t e d t i m e p r e s s u r e and i f t h i s t i m e l i m i t were complied  with,  t h e y would not be a b l e t o g i v e t h e q u e s t i o n n a i r e much t h o u g h t . On the whole, the s u b j e c t s found the In-Basket  extremely  i n t e r e s t i n g but f e l t t h a t the f a c t s c o n t a i n e d i n i t were too much t o h a n d l e .  A c c o r d i n g t o the s u b j e c t s t h e items s h o u l d  be  trimmed. As f a r as t h e memo r e s p o n s e s were concerned, many f e l t t h a t , a l t h o u g h r i s k was  t a k e n i n t o c o n s i d e r a t i o n , t h e i d e a o f an  matum i n i t e m 3 compelled posal.  ulti-  them t o r e j e c t the c o n s e r v a t i v e p r o -  Others brought i n a n t i t r u s t c o n s i d e r a t i o n and thus  con-  founded t h e r i s k - r e l e v a n t s t r a t e g y s c o r e s . I t i s a l s o d i f f i c u l t t o d e c i d e how i n f o r m a t i o n ' s h o u l d be t r e a t e d .  the s t r a t e g y o f  'gathering  On t h e one hand, t h i s may  be  c o n s i d e r e d more r i s k a v e r s e t h a n t a k i n g the c o n s e r v a t i v e a l t e r n a t i v e immediately,  s i n c e g a t h e r i n g i n f o r m a t i o n may  be  considered  an i n t e r m e d i a t e s t r a t e g y w i t h no commitment t o e i t h e r r i s k y conservative a l t e r n a t i v e .  or  Rather t h a n o u t r i g h t commitment, they  a r e h e s i t a t i n g by g e t t i n g more i n f o r m a t i o n ( p o s s i b l y i n o r d e r t o 'reduce' the r i s k ) .  On t h e o t h e r hand, g a t h e r i n g i n f o r m a t i o n i s  a r i s k i e r s t r a t e g y than t a k i n g a c o n d i t i o n a l c o n s e r v a t i v e  alter-  n a t i v e and i s c o n s i d e r e d i n t e r m e d i a t e r i s k - t a k i n g i n t h a t the  82 s u b j e c t s may p e r c e i v e g r e a t e r r i s k by g a t h e r i n g i n f o r m a t i o n s i n c e t h e r e i s t h e p o s s i b i l i t y t h a t a f t e r g a t h e r i n g more i n f o r mation both options  ( i . e . , the r i s k y a l t e r n a t i v e o r the conser-  v a t i v e a l t e r n a t i v e ) may v a n i s h o r may n o t be open t o them. These two c o n t e n t i o n s c o n c e r n i n g g a t h e r i n g i n f o r m a t i o n cannot be r e s o l v e d . Choice  The same may be s a i d o f t h e d e l a y s t r a t e g y .  Dilemma  A.  The r e s p o n s e o f t h e s u b j e c t s i n each i t e m i s a number  out o f t e n . responses.  An aggregate s c o r e i s d e r i v e d by a v e r a g i n g  these  The r a n k i n g s a s s i g n e d by s u b j e c t s t o t h e items a r e  u s e d f o r t h e a n a l y s i s i n E. B.  The d i s t r i b u t i o n o f t h e aggregate s c o r e s i s i l l u s t r a t e d  below. FIGURE 6 - 5 Choice Dilemma Odds Score Frequency D i s t r i b u t i o n (Histogram) 45.ft%  16  31.8%  to  n.5%  5.7% Z.9%  2.9% OS  1.5  2.S  3.5  +.S  SS  6.5  7.S  8.5  9-5  Scares  83  The mean o f t h e group i s 6 . 3 8 4 w i t h a s t d . d e v i a t i o n o f 0.886.  Thus, on t h e a v e r a g e , t h e group would accept t h e r i s k y  a l t e r n a t i v e as posed "by t h e q u e s t i o n n a i r e o n l y i f t h e minimum odds f o r s u c c e s s  i s g r e a t e r t h a n s i x out o f t e n , o r i f t h e odds  are b e t t e r t h a n t h o s e o f a c o i n t o s s .  A l s o , t h e shape o f t h e  d i s t r i b u t i o n s u g g e s t s t h a t t h e group i s f a i r l y homogeneous (the range i s 4 . 6 w i t h t h e minimum v a l u e a t 4 . 0 ) i n t h e i r responses. .. C.  F i g u r e 6 - 6 g i v e s u s a p i c t u r e o f how i t e m 3 i s r a n k e d  i n r e l a t i o n t o other items.  Because i t i n v o l v e s a p o s s i b l y  f a t a l o p e r a t i o n , t h e consequence o f t h e u n c e r t a i n a l t e r n a t i v e i s p e r c e i v e d t o be most s e v e r e e i g h t y - o n e  percent  o f the time.  Figure 6-7 i m p l i e s t h a t a m a j o r i t y o f t h e s u b j e c t s , perc e i v i n g t h i s i t e m t o be most s e v e r e , recommend t a k i n g t h e r i s k y a l t e r n a t i v e o n l y when t h e minimum odd f o r s u c c e s s  i s high.  mode odd i s s e t a t 9 . 0 0 0 w h i l e t h e mean i s 8 . 0 3 .  A l s o , no sub-  j e c t responded below a minimum odd o f 5»  The  Thus t h e most s e v e r e  i t e m e l i c i t e d r i s k a v e r s i o n from a l l t h e s u b j e c t s .  84  FIGURE 6 - 6 Choice Dilemma Rank, Item 3  No. of Subjects  81-0%  20 •  IO  3.Q%  mo!* severe  a  8  3  I  3Q%  I t«aST  Sevcre  Mediani 1 . 1 1 1 Modei 1 . 0 0 Variance! 4 . 3 7 7 FIGURE 6 - 7 Choice Dilemma Odd, Item 3 Frequency Absolute  4-0.0%  ro  25.7% 22.9%  8 Mediani Modei  8 . 0 5 4 9 . 0 0 0  more rrsfe-averse  IO ->  -Odds  Cbu+ of 10;  85 D.  The i n t e r e o r r e l a t i o r i s  o f t h e items w i t h one a n o t h e r  a r e p r e s e n t e d i n t h e t a b l e below. Item 3 i s t h e o n l y one n o t s i g n i f i c a n t l y the aggregate  score.  correlated with  T h i s c o u l d be e x p l a i n e d by t h e f a c t t h a t  i t i s t h e o n l y i t e m i n t h e q u e s t i o n n a i r e t h a t does n o t d e a l with business r i s k .  S i n c e t h i s i t e m concerns  the p o s s i b i l i t y  o f a f a t a l o p e r a t i o n , i t may be t r e a t e d as d i f f e r e n t from t h e rest. Item 5 ( c o n c e r n i n g t h e p o s s i b i l i t y o f i n v e s t i n g a l o w income man's i n h e r i t a n c e i n r i s k y s t o c k s ) and i t e m 6 ( c o n c e r n i n g the p o s s i b i l i t y o f a man b e i n g c o n v i c t e d f o r t r e a s o n ) have t h e lowest s i g n i f i c a n t  c o r r e l a t i o n s w i t h t h e Aggregate Score.  These two items c o r r e l a t e h i g h l y w i t h one a n o t h e r .  However,  t h e mean s e v e r i t y r a n k s f o r t h e s e two a r e s i g n i f i c a n t l y ent  (9.8 f o r i t e m 5 and 3.7 f o r i t e m 6).  a t i o n s i n t h e s e two items a r e n o t s i m i l a r ;  differ-  The c o n t e n t s o r s i t u t h u s , t h e r e i s no  reason t o expect t h a t t h e two items s h o u l d c o r r e l a t e o n l y w i t h one  another. Improving  t h e measure as a ' b u s i n e s s r i s k t a k i n g * measure  w i l l e n t a i l t h e e l i m i n a t i o n o f items 3» 5 and 6. The  i n t e r - i t e m c o r r e l a t i o n s p r e s e n t e d i n Table V show t h a t  items 8 and 9 (the f i r s t c o n c e r n i n g a s a l e s manager's d e c i s i o n t o s e l l t o a p o l i t i c i a n who might n o t pay h i s b i l l s and t h e l a t t e r , a businessman's e n t r y i n t o p o l i t i c s as a c a n d i d a t e ) are p o o r l y c o r r e l a t e d w i t h the r e s t .  These two items a l s o  r e q u i r e m o d i f i c a t i o n and may a l s o be c a n d i d a t e s f o r e l i m i n a t i o n .  TABLE V Choice Dilemma Item Item No. 1  1  2  3  (0.489)  -.236 (.29)  2 3 4  4  Intercorrelations  5  6  (.483)  -.006  .172  (.29)  -.08  .26  -.04  -.27  .03  .22  (-0.3)  (.358)  5 6 7 8  8  9  (.365)  .07  .24  .119  .05  0.02  .06  -."06  -.06  .20  .03  -.03  7  10  Ag. Score  (.54)  (.702)  -.26  (.36)  (.422)  -.17  -.19  0.13  .008  .10  (.47)  .07  -.10  (.3*)  .16  .14  -.13  (.325)  .27  .23  (.36)  (.57)  .07  -.08  (.42)  .15  (.39)  9 10  (.463)  Ag. Score Coefficients  e n c l o s e d i n p a r e n t h e s i s are  s i g n i f i c a n t a t O.05 l e v e l .  00  O N  87 E.  (1967) a s s e r t e d t h a t t h e g r e a t e r  Kogan and Wallach  t h e s e v e r i t y o f consequences, t h e more r i s k - a v e r s e t h e b e h a v i o r . In o r d e r t o examine t h e r e l a t i o n s h i p between s e v e r i t y o f consequences and r i s k t a k i n g , a Spearman rho between t h e s u b j e c t ' s r a n k i n g s o f t h e t e n items item consequences—with  (as i n d i c a t i o n o f t h e s e v e r i t y o f  1 as t h e most s e r i o u s t o 10 as t h e  l e a s t s e r i o u s ) and odds ( c o n v e r t e d i n t o o r d i n a l s c a l e where rank 1 i s used f o r t h e l o w e s t minimum odds, e t c . ) i s g e n e r a t e d f o r each s u b j e c t . Because t h e r e a r e o n l y t e n i t e m s , f o r any c o r r e l a t i o n c o (at t h e 5$ l e v e l ) , t h e v a l u e must  e f f i c i e n t t o be s i g n i f i c a n t be l e s s t h a n -0.648.  The h y p o t h e s i z e d c o r r e l a t i o n s h o u l d be  n e g a t i v e because o f t h e way we o r d e r t h e odds and t h e r a n k s . Of t h e 33 s u b j e c t s who have complete answers t o t h i s meas u r e , 30 have n e g a t i v e c o e f f i c i e n t s none o f w h i c h a r e s i g n i f i cant  (the r ' s range from -.606  have p o s i t i v e c o e f f i c i e n t s  t o -0.042).  The r e m a i n i n g t h r e e  ( r ' s t 0.164 t o 0.025).  Based on  t h e s e r e s u l t s , one cannot s a y t h a t p e r c e i v e d s e v e r i t y o f consequence i s r e l a t e d t o r i s k t a k i n g . Another way o f l o o k i n g a t t h e s e v e r i t y o f consequence i s s u e i s t o compare t h e median r a n k s f o r t h e items w i t h t h e mean odd. Table V I summarizes t h e mean odds o f t h e group f o r each i t e m , the mode r a n k , and t h e median rank.  A g a i n , t h e r e i s no s i g n i -  f i c a n t i n d i c a t i o n t h a t t h e group a s s i g n s l o w e r odds (or t a k e s h i g h e r r i s k ) t o h i g h e r ranked  (less severe) items.  88 TABLE VI Mode Ranks o f Items, Mean Odd o f Items and Median Ranks! Item  Mode Rank  No.  1 2 3 4  4 4 1 2 10 2 8 6 7 10  5 6 7  ..  8 9 10  •  Median Rank  4.11 3.85 1.11 3,5 8.86 4.85 6.37  5.81  7.38 8.25  Mean Odd  -  Variance Odd  5.34  4.87  5.24 7.42  4.84  3.35  6.78 5.7 7.63 7.79 5.54 5.63 .4.26 .  3.18 5.17  4.4 3.03 5.9 6.11 4.11.  A n a l y s i s of v a r i a n c e , using F - d i s t r i b u t i o n , r e v e a l s that the means.of t h e items a r e s i g n i f i c a n t l y d i f f e r e n t from one a n o t h e r (p <. .001). T h i s i m p l i e s t h a t items a r e i n h e r e n t l y different...  I f we c o n s i d e r i t e m 3 and i t e m 10,  t h e s e two b e i n g  the  most extreme i n r a n k i n g s , the mean odds a r e s i g n i f i c a n t l y ent  (p  0.05,  p o o l e d s t d . d e v i a t i o n = 2.03).  The  relationship  o f s e v e r i t y and r i s k t a k i n g , based on the above s t a t e m e n t , r e a l l y be ' d i s c o n t i n u o u s ' i n t h a t t h e extreme items  are not.  may  (the l e a s t  and t h e most.severe) a r e s i g n i f i c a n t l y d i f f e r e n t from another  differ-  i n r i s k t a k i n g r e s p o n s e s w h i l e the.ones i n the  one middle  T h e r e . i s o f course t h e p o s s i b i l i t y t h a t the r a n k i n g  i n t h e l e s s extreme cases a r e not a c c u r a t e l y r e p o r t e d by s u b j e c t s because o f t h e i r i n a b i l i t y t o d i s t i n g u i s h  the  meaningfully  among items whose degrees o f s e v e r i t y a r e q u i t e c l o s e . c a s e , the rankings o f t h e s e items become q u e s t i o n a b l e .  In t h i s  89 Utility  Items  A.  There a r e e s s e n t i a l l y t h r e e s c o r e s d e r i v e d .  The  method o f d e r i v i n g t h e s c o r e i s s i m i l a r t o what B a s s l e r (1972) did_ i n t h a t t h e h o r i z o n t a l d e v i a t i o n o f t h e e q u i v a l e n t from t h e expected v a l u e i s t a k e n , c o n v e r t e d i n t o percentage as a p e r c e n t a g e  o f EV) and summed up.  term  (i.e.,  These t h r e e s c o r e s a r e t  Compensation U t i l i t y s c o r e , Net P r o f i t , and Rate o f R e t u r n . The  f i r s t i s a g a i n e q u i v a l e n t s c o r e ; t h e second i s a "buying  equivalent score; the t h i r d involves e q u i l i b r a t i n g  probabilities  and t h e f o u r t h , t h e u s u a l c e r t a i n t y e q u i v a l e n t (Swalm). B. are  The f i g u r e s below i l l u s t r a t e  how t h e s e u t i l i t y s c o r e s  distributed. FIGURE 6-8 Histogram Compensation U t i l i t y  Scores  No. of Subjects to  24%  18.0%  9.a%  6.1%  6%  3.0%  -0*  3% -O.b  Mean; .327 Median: .421  -0.4-  O-  0.2  0.4  Variancei .345 Rangei 10.156  o.fe  0-8  1  Utility Score  more nsfe averse  ,  6  90 FIGURE 6-9 H i s t o g r a m , Net P r o f i t U t i l i t y  Scores  No. of Subjects 333%  to *4.3%  9.\% e.\% 3.0%  •ZS  -15  0.5  15  25  3.5  4-5  15-923 17.I6.5  Variance!  Meant .2.131  .Mediant  G.\% 30%  3.0%  Range 1  2.0  sr5 .  6.5 T S Net Profit Vrt-ili^ Scores  more nsK averse  FIGURE 6-10 H i s t o g r a m , Rate o f R e t u r n U t i l i t y  Scores  No. of Subjects.  10  4-%  0.2  OA  Mean 1 .202 V a r i a n c e 1 .104  08  Range 1 Mediant  »0  «Z  1.965 .162  1.4  1.6  1.8  J  a.o "RR Scopes  mow risK averse  91 The r e s u l t s o f t h e Compensation U t i l i t y Score r e v e a l t h a t one s u b j e c t has a v e r y extreme v a l u e  (-12.927).  This i m p l i e s  t h a t h i s t o t a l d e v i a t i o n from t h e expected v a l u e s i s -1200$. He has "been i n c o n s i s t e n t i n t h a t h i s c e r t a i n t y e q u i v a l e n t s a r e l a r g e r t h a n t h e maximums o f t h e EV's r a n g e s .  I n o t h e r words,  g i v e n an u n c e r t a i n a l t e r n a t i v e w i t h 50$ chance o f g a i n i n g t w i c e the amount o f h i s c u r r e n t s a l a r y and 50$ chance o f r e c e i v i n g o n l y one h a l f o f h i s c u r r e n t s a l a r y , he r e q u i r e s , i n l i e u o f t h i s u n c e r t a i n a l t e r n a t i v e , a s u r e income g r e a t e r t h a n t w i c e the current s a l a r y . of h i s answers.  Thus, t h i s r a i s e s doubt on t h e a c c u r a c y  The r e s t o f t h e r e s p o n s e s seem r e a s o n a b l e i n  t h a t t h e most r i s k a v e r s e s u b j e c t has a t o t a l d e v i a t i o n o f 160$ from t h e e x p e c t e d v a l u e s .  (On a v e r a g e , g i v e n t h r e e c e r t a i n t y  e q u i v a l e n t s , h i s certainty.amount v a l u e by 53$ The  d e v i a t e s from t h e expected  approximately.)  Net P r o f i t U t i l i t y Score d i s t r i b u t i o n as p r e s e n t e d i s  not p e c u l i a r .  However, t h e r e a r e two s u b j e c t s whose t o t a l d e v i -  a t i o n s a r e about 1200$ t o 970$ o f t h e expected v a l u e s .  The s i z e  of t h e v a r i a n c e r e v e a l s .this.... Four i n d i v i d u a l d e v i a t i o n s a r e d e r i v e d from t h e q u e s t i o n n a i r e , c o n v e r t e d and summed.  i n t o percentage terms,  Based on t h i s c a l c u l a t i o n , t h e s u b j e c t s w i t h ex-  treme v a l u e have, on t h e a v e r a g e , n e g a t i v e d e v i a t i o n s o f about 300$ t o 240$.  F o r t h e s e two s u b j e c t s , t h e p o s s i b i l i t y t h a t  haven't t h o u g h t t h e problems out w e l l i s g r e a t . side  they  On t h e p o s i t i v e  ( i n d i c a t i n g h i g h e r r i s k a v e r s i o n ) , t h e r e a r e a l s o two sub-  j e c t s w i t h a 550$ t o 650$ d e v i a t i o n from e x p e c t e d v a l u e . I f t h e s e t o t a l d e v i a t i o n s were d i v i d e d by f o u r , t h e r e s u l t o f 140$  92 t o 1S0% r e v e a l s t h a t t h e s e two s u b j e c t s r e q u i r e ( i n l i e u o f t h e u n c e r t a i n a l t e r n a t i v e ) a s u r e amount t h a t i s more t h a n t w i c e t h e expected v a l u e .  These r e s u l t s a r e a c c e p t a b l e .  As f o r t h e r a t e o f r e t u r n u t i l i t y d i s t r i b u t i o n , o n l y one s u b j e c t seems t o be e x t r e m e l y  out o f l i n e w i t h t h e r e s t . (68$)  are r e l a -  total deviations).  Actually,  r e s u l t s i n d i c a t e that a majority of the subjects t i v e l y n e u t r a l (rangei  0.0  t o 0.2  The  f i v e s u b j e c t s have zero t o t a l d e v i a t i o n s i n d i c a t i n g t h a t t h e i r c e r t a i n t y e q u i v a l e n t s a r e e q u a l t o t h e r e s p e c t i v e expected values  ( o r r i s k n e u t r a l as d e f i n e d ) .  Thus, none a r e r i s k  takers  i n t h e i r responses. In D, we w i l l examine how t h e s e u t i l i t y s c o r e s s t a n d up i n terms o f c r e d i b i l i t y .  One would expect t h a t t h e s e f o u r  scores  should c o r r e l a t e h i g h l y , C.  The Net P r o f i t U t i l i t y  b i l i t y o f s u c c e s s as a.response.  Questionnaire  asks f o r proba-  An e x a m i n a t i o n o f t h e answers  ( p l e a s e see Appendix) r e v e a l s t h a t o n l y t h r e e s u b j e c t s gave any extreme p r o b a b i l i t y assignments t o any i t e m two  (p = 1.) w h i l e  s u b j e c t s a r e r i s k n e u t r a l ( i . e . , g i v i n g .33,  •33 as p r o b a b i l i t i e s t o t h e 4 i t e m s ) .  «50,  .50,  only and  The q u e s t i o n s t i l l r e -  mains as t o whether one s h o u l d a c c e p t p r o b a b i l i t y assignments o f 1.0 D.  as v a l i d r e s p o n s e s . F o r each i t e m , t h e s u b j e c t ' s r e s p o n s e i s used t o c a l -  c u l a t e t h e d e v i a t i o n ("premium") from t h e expected v a l u e s .  In  t h i s s e c t i o n , t h e s e d e v i a t i o n s ( i n p e r c e n t a g e t e r m s ) a r e used r a t h e r t h a n t h e raw r e s p o n s e s .  A l t h o u g h t h e Compensation U t i l i t y  Scores ( a g g r e g a t e ) c o r r e l a t e s i g n i f i c a n t l y w i t h t h e i n d i v i d u a l  93 i t e m s d e v i a t i o n s , t h e d e v i a t i o n s themselves a r e n o t s i g n i f i c a n t l y r e l a t e d as r e v e a l e d by T a b l e V I I . TABLE V I I C o r r e l a t i o n M a t r i x (Pearson) Compensation U t i l i t y " D e v i a t i o n s " and S c o r e s 1  2  3  1.00  ,1?2 1.00  .162 -.123 1.00  Item No.  1 2 3  Score (Ag.).  Ag. Score (.397) (.741)  (.573) 1.000  C o e f f i c i e n t s e n c l o s e d i n p a r e n t h e s i s a r es i g n i f i c a n t a t 0.05 l e v e l . TABLE-VIII C o r r e l a t i o n M a t r i x (Pearson) Rate o f R e t u r n U t i l i t y Scores 1  Item No.  2  1 2 3 4  3  (.81)  RR Score  4  .20 .17 -.072  (.46) .14  (.49) (.43) .123} 1.95)  ~RR Score C o e f f i c i e n t s enclosed i n parenthesis are s i g n i f i c a n t a t .05 l e v e l . TABLE IX C o r r e l a t i o n M a t r i x (Pearson) Net P r o f i t U t i l i t y Score Item No. 1 2 Ag. Score  1  2  2  4  (.33)  .21 .16  (.49)  (.72) .15  Ag. Score  (.60) (.72)  (.74) (.64)  C o e f f i c i e n t s enclosed i n parenthesis are s i g n i f i c a n t a t .05 l e v e l .  94  From t h e t a b l e s above, we can l o o k a t t h e o f t h e b u s i n e s s r i s k premiums. t e n c y check d e v i a t i o n ( 4 )  The c o r r e l a t i o n o f t h e c o n s i s -  and t h e one  i s b e i n g done i s not s i g n i f i c a n t  (1)  f o r w h i c h t h i s check  f o r the r a t e of r e t u r n u t i l i t y  q u e s t i o n s but i s h i g h l y s i g n i f i c a n t (items 1 and 4 ) .  intercorrelation  f o r t h e net p r o f i t  one  Moreover, i t e m 4 o f the r a t e o f r e t u r n ques-  t i o n n a i r e s t a n d s out p o o r l y .  The r e t e n t i o n o f t h e ROI check i n  the f u t u r e i s not a d v i s a b l e due t o t h e s e r e s u l t s .  In f a c t , i t s  n e g a t i v e c o r r e l a t i o n w i t h i t e m 3 p l a c e s t h e i t e m i n much doubt. The r e s u l t s o f the i n t e r c o r r e l a t i o n s o f t h e Net  Profit  U t i l i t y items suggest t h a t the i t e m s , except i t e m 3 , a r e  fairly  acceptable. E.  An e x a m i n a t i o n  o f t h e computed r i s k premiums i s under-  t a k e n f o r each s u b j e c t t o a s c e r t a i n the n a t u r e o f h i s m a r g i n a l utility.  These r i s k premiums, by t h e way,  centage terms ( p l e a s e see A o f U t i l i t y  a r e expressed  i n per-  Items).  For Compensation U t i l i t y i t e m s , 1 0 s u b j e c t s have d e c r e a s i n g r i s k premiums ( i . e . , p e r c e n t a g e decreases w h i l e 4 have i n c r e a s i n g r i s k premiums.  as income i n c r e a s e s )  The r e s t change from de-  c r e a s i n g r i s k premiums t o i n c r e a s i n g r i s k premiums. n o t i o n o f c o n s t a n t r i s k a v e r s i o n i s not c o n f i r m e d .  Thus the For the  business u t i l i t y items, the marginal u t i l i t y nature i s a l s o h i g h l y i n d i v i d u a l i s t i c because o f t h e m i x t u r e o f i n c r e a s i n g , decreasing or constant r i s k a v e r s i o n . The r a t e o f r e t u r n and net p r o f i t q u e s t i o n n a i r e s have i n each an i t e m w h i c h s e r v e s as a c o n s i s t e n c y check (as d i s c u s s e d i n Chapter 2 ) .  U s i n g a "neighborhood" c r i t e r i o n o f 10%  (i.e.,  95 t h a t t h e responses t h a n 10%  i n t h i s check i t e m s h o u l d not d e v i a t e more  from t h e answers t h e y gave i n t h e p r e v i o u s i t e m f o r  w h i c h check i s made), 25  s u b j e c t s (71%)  t h e i r r a t e of r e t u r n responses  (10  have i n c o n s i s t e n c y i n  i n t h e more r i s k - t a k i n g d i -  r e c t i o n and t h e r e s t i n t h e more r i s k - a v e r s e  direction).  In  t h e n e t p r o f i t check i t e m , 32 have i n c o n s i s t e n t r e s p o n s e s  (20  i n t h e more r i s k a v e r s e  d i r e c t i o n and 12  i n the l e s s  risk-  averse' ). A few s u b j e c t s ' u t i l i t y c u r v e s a r e a c t u a l l y p l o t t e d F i g u r e 6-11  out.  g i v e s us one s u b j e c t ' s t h r e e u t i l i t y c u r v e s .  He i s  c o n s i d e r e d t h e 'most extreme* p e r s o n i n t h a t h i s u t i l i t y  curves  are extremely d i s s i m i l a r .  I t i s c o n c e i v a b l e t h a t compensation  and t h e o t h e r two u t i l i t y c u r v e s a r e d i s s i m i l a r as t h e y  belong  to  the  d i f f e r e n t c a t e g o r i e s — o n e p e r t a i n i n g t o p e r s o n a l and  other to business.  But even t h e b u s i n e s s u t i l i t y c u r v e s do  seem t o be o f t h e same k i n d f o r t h i s s u b j e c t .  But, as we  not  said  b e f o r e , he i s an extreme case.  Utility for i.o Compensation  ^  J  Compensation $ $6,0OO.  \\jOOO  $I'G,OOO.  F i g u r e 6-11(a) One s u b j e c t ' s t h r e e U t i l i t y Curves  96  A l s o , r a t e o f r e t u r n u t i l i t y s c o r e s a r e compared under two c o n d i t i o n s — u n d e r  t h e l a r g e f i r m a s s u m p t i o n and under t h e  s m a l l f i r m a s s u m p t i o n ( t = 1.0994, d f = 33» p ~ 0 . 3 0 ) . same comparison method i s done f o r t h e net p r o f i t scores  ( t = 1.98,  p > 0.05).  The  utility  I t would n o t seem l i k e l y  that  t h e group has d i f f e r e n t r i s k t a k i n g p r o p e n s i t y under t h e two conditions.  T h i s i m p l i e s t h a t t h e s i z e o f t h e f i r m does not  affect resultant risk taking  propensity.  97 We a r e p r i m a r i l y i n t e r e s t e d i n how t h e s u b j e c t s a r e p l a c e d as r i s k t a k e r s by t h e s e u t i l i t y  items.  Ordinal scale i n t h i s  case i s as a c c e p t a b l e as t h e • a b s o l u t e * o r i n t e r v a l s c a l e . Thus, u s i n g t h e K e n d a l l Tau r a t h e r t h a n t h e P e a r s o n ' s , t h e business u t i l i t y scores c o r r e l a t e s i g n i f i c a n t l y and r a t e o f r e t u r n ) w i t h r = 0.215 (p = 0.039).  (net p r o f i t However, t h e  Pearson c o r r e l a t i o n i s n o t s i g n i f i c a n t a t t h e 0.05 l e v e l .  If  we a r e t o c o n s i d e r o n l y placement o f i n d i v i d u a l s i n terms o f r a n k , r a t h e r t h a n l o o k i n g a t magnitudes, t h e K e n d a l l t a u suggests that the u t i l i t y  items i n t h e b u s i n e s s s e c t i o n s v a l i d a t e  one a n o t h e r as r i s k t a k i n g measures. T a b l e X g i v e s us an i d e a how t h e s e u t i l i t y w i t h one a n o t h e r .  The " p e r s o n a l " u t i l i t y s c o r e  items  relate  (compensation)  does n o t c o r r e l a t e s i g n i f i c a n t l y w i t h t h e b u s i n e s s u t i l i t y  scores.  TABLE X CORRELATIONS OP UTILITY ITEMS'1 Compensation Compensation  Rate o f Return  Profit  1.000  Rate o f R e t u r n  1.000  Net  0.2948  Profit  Net  1.000  M i s s i n g means no s i g n i f i c a n t c o r r e l a t i o n s ( p > 0 . 0 5 ) . A l l c o r r e l a t i o n c o e f f i c i e n t s , p<0.039. Thus, we can s a y t h a t t h e r e i s no s i g n i f i c a n t r e l a t i o n s h i p ( o r d i n a l ) between p e r s o n a l u t i l i t y and b u s i n e s s u t i l i t y  scores.  98 F.  As we mentioned i n p r e v i o u s c h a p t e r s , t h e i n c l u s i o n  of the u t i l i t y  items as p a r t o f t h e f a c e - t o - f a c e s e t i s due t o  the f e a r t h a t t h e items i n t h e u t i l i t y s e t may n o t be as c l e a r as we i n i t i a l l y t h o u g h t . j e c t s * misunderstanding i n the experimenter's  Because o f t h e p o s s i b i l i t y o f subo f t h e c o n t e n t s , t h e s e were  presented  presence.  However, d u r i n g a d m i n i s t r a t i o n , t h e s u b j e c t s d i d n o t ask for  any c l a r i f i c a t i o n .  Thus, i n c l u s i o n i n t h e c a t e g o r y s e t  mentioned i s a f t e r a l l not n e c e s s a r y . There i s a l s o t h e i n i t i a l f e a r t h a t t h e s u b j e c t s , because o f t h e i r MBA t r a i n i n g , w i l l use t h e EV m a x i m i z a t i o n and r e s u l t i n r i s k n e u t r a l assessments.  However, o n l y a few  s u b j e c t s t u r n e d out t o u s e t h e s a i d c r i t e r i o n . i s not w a r r a n t e d .  criterion  Thus t h e f e a r  One o f t h e s e s u b j e c t s even w r o t e on t h e s i d e  t h a t t h e q u e s t i o n n a i r e was e a s i l y seen t h r o u g h (he thought t h i s was some s o r t o f a t e s t on expected v a l u e ) . S c a l e o f Wager Although we have i n c l u d e d t h i s measure i n t h e u t i l i t y s e t and have d i s c u s s e d t h i s q u e s t i o n n a i r e i n t h e p r e v i o u s as a u t i l i t y  chapters  one c l a s s i f i e d as p e r s o n a l u t i l i t y , t h i s i s n o t a  u t i l i t y measure i n t h a t i t d i f f e r s from t h e u t i l i t y measures i n many r e s p e c t s . different.  The form o f t h e q u e s t i o n s c o n t a i n e d i n i t i s  A l s o , t h e s c o r e d e r i v e d does n o t f o l l o w t h e conven-  t i o n o f t h e u t i l i t y ones.  By c o n v e n i e n c e , t h i s measure has been  included w i t h the u t i l i t y set.  In the a n a l y s i s t o f o l l o w , t h i s  q u e s t i o n n a i r e i s c o n s i d e r e d d i s t i n c t from t h e u t i l i t y  ones.  99 A.  The S c a l e o f Wager Score d e r i v e d i s a p r o d u c t o f t h e  numher o f no r e s p o n s e s  ('no'  i n d i c a t i n g t h a t t h e s u b j e c t would  n o t p l a y t h e game) and t h e d e v i a t i o n s o f t h e responses from t h e expected v a l u e s .  The d e v i a t i o n i s d e r i v e d by g e t t i n g t h e d i f f e r -  ence between z e r o and t h e e x p e c t e d v a l u e o f t h e gamble i n each i t e m ( i . e . , t h e b u y i n g p r i c e t h e s u b j e c t o f f e r s i s added t o t h e l o s s amount and t h e e x p e c t e d v a l u e i s computed). B.  The f r e q u e n c y d i s t r i b u t i o n o f t h e s c a l e o f wager  s c o r e s i s p r e s e n t e d below. FIGURE  6-12  H i s t o g r a m , S c a l e o f Wager Scores No. 10 of Subjects  5  Mean t 13.577 Mediant 16.65  , 26%  1433%  is more risk averse  14.34%  14.33%  18  21  V a r i a n c e ! 90.702 Range 1 27.7  The apparent d i s c o n t i n u i t y o f t h e f r e q u e n c y  24  _  2.7  3D  .Scale, of .Uager • Scores .  distribution  o f t h e s c a l e o f wager s c o r e s i s a r e s u l t o f t h e method employed i n c a l c u l a t i n g the score.  Because t h e number o f no responses i s  used as a w e i g h t , the m u l t i p l i c a t i o n o f t h i s w i t h t h e t o t a l  100 d e v i a t i o n s r e s u l t s i n the p e c u l i a r i t y o f t h e frequency  distri-  b u t i o n (the p o s s i b l e numbers o f no r e s p o n s e s a r e 0, 1, 2, 3, 4 and 5)»  Seven s u b j e c t s have z e r o d e v i a t i o n s i n d i c a t i n g t h a t  here t h e y e i t h e r have z e r o no r e s p o n s e s o r use expected v a l u e as a c r i t e r i o n i n r e s p o n d i n g  ( i n that t h e i r buying e q u i v a l e n t s  r e s u l t i n zero expected v a l u e s ) . F i g u r e 6-13  c l a r i f i e s what t h e d i s t r i b u t i o n o f no r e s p o n s e s  Comparing t h i s w i t h F i g u r e 6-12,  is.  c i e s f i t i n n i c e l y , i n t h a t 21$,  we f i n d t h a t t h e f r e q u e n -  h a v i n g z e r o s c a l e o f wager  score i n the. previous f i g u r e , i s a l s o the percentage o f people w i t h z e r o no r e s p o n s e s .  A z e r o 'no responses* i n d i c a t e s t h a t  a l l t h e games a r e a c c e p t a b l e .  The maximum p o s s i b l e l o s s i f t h e  f i v e games were p l a y e d , by t h e way, i s $20,000. FIGURE 6-13 H i s t o g r a m , Number o f No  Responses-*-  ,. 2 6 %  9 NO. OP SUBJeCTS  1*33%  1433% 1434%  9%  number of NO responses No i n d i c a t e s t h a t t h e s u b j e c t s w i l l n o t p l a y t h e wager even though t h e y might have p u t down b u y i n g e q u i v a l e n t s . Meani 2.32 Median i 3  Variance« 1.25 Ranget 5«0  101 A g a i n , t h e r e i s some doubt as t o whether t h e s u b j e c t s who i n d i c a t e t h e i r w i l l i n g n e s s t o play are t e l l i n g the t r u t h . C.  T a b l e X I and X I I g i v e us an i d e a o f how s u b j e c t s r e s -  ponded t o items 4 and 5 o f "the S c a l e o f Wager q u e s t i o n n a i r e . f o r m e r i t e m r e f e r s t o a gamble w i t h a 50-50 chance o f w i n n i n g  The  $2,000 o r l o s i n g $1,000; and t h e l a t t e r concerns a 50-50 chance o f g a i n i n g $20,000 o r l o s i n g $10,000. TABLE X I Frequency D i s t r i b u t i o n , Buying P r i c e s Item 4, S c a l e o f Wager Buying P r i c e  $  R e l a t i v e Frequency  0.00 100.00 500.00 1,000.00  71$ 6% 11% 6$  above 1,000.00  6$  Frequency  25 2 4 2  ..  2  100$  206.00  Meani  Absolute  35  TABLE X I I Frequency D i s t r i b u t i o n , Buying P r i c e s Item 5, S c a l e o f Wager Buying P r i c e  R e l a t i v e Frequency  0.00 500.00 3,000.00 5,000.00 10,000.00  above 10.000  80$ 2.9$ 2.9$ 5.6$ 2.9$ 5.7$  100$  Absolute  Frequency 28  1 1 2 1 2  3'5  Mean» 1,471.00 Even though t h e p o s s i b l e g a i n i s v e r y h i g h i n t h e s e two i t e m s , a m a j o r i t y o f t h e s u b j e c t s would n o t pay a n y t h i n g f o r  102 t h e game because o f t h e s i z e o f t h e p o s s i b l e l o s s .  F o r sub-  j e c t s who i n d i c a t e d t h a t t h e y would buy t h e wager a t a h i g h p r i c e , t h e i r responses the s t a k e i n v o l v e d .  might be a b i t q u e s t i o n a b l e because o f  Thus, t h e h y p o t h e t i c a l n a t u r e o f t h e game  might have induced i n a c c u r a t e answers i n t h a t t h e s u b j e c t s a t p r e s e n t do n o t have t h e amounts they i n d i c a t e d . n a i r e assumes t h a t t h e s u b j e c t s t a k e account  The q u e s t i o n -  of t h e i r present  w e a l t h l e v e l b u t does n o t e x p l i c i t l y t e l l t h e s u b j e c t s t o assume such. For items 1, 2, and 3 "the mean b u y i n g p r i c e s a r e J i t e m 1, 3.15 f o r i t e m 2 and 20.28 f o r i t e m 3.  $.45 f o r  Here i s a rough  i n d i c a t i o n t h a t t h e b u y i n g p r i c e s do n o t i n c r e a s e i n t h e p r o p o r t i o n s i m i l a r t o t h e p r o p o r t i o n a t w h i c h expected v a l u e i n creases. D.  The S c a l e o f Wager d e v i a t i o n s ( i f compared w i t h Com-  pensation u t i l i t y  i t e m s ) shows much b e t t e r 'cohesion*  t h e s e a r e c o r r e l a t e d s i g n i f i c a n t l y w i t h one a n o t h e r .  i n that The aggre-  gate s c o r e i s h i g h l y c o r r e l a t e d w i t h t h e i n d i v i d u a l d e v i a t i o n s . I f t h e v a l i d i t y i s based on i t e m a n a l y s e s a l o n e , t h e S c a l e o f Wager i s s u p e r i o r t o the 'other u t i l i t y following f u l l y verifies  scores.'  The t a b l e  this. TABLE X I I I  Correlation Matrix S c a l e o f Wager Premiums and Scores Item No.  1  2  Ag.  3 4 5  Score  1  2  3  (.82)  (.69) (.81)  Ag.  (.69) (.72) (.86)  (.64) (.80)  (.93) (.87)  Score  (.69) (.65) (.57)  103  However, t h e s e h i g h c o r r e l a t i o n s a r e n o t t h e o n l y c o n s i d e r a tion.  The d i s c u s s i o n i n (C) has g i v e n us an i d e a o f t h e dubious  nature o f the s u b j e c t s ' E.  responses.  Each s u b j e c t ' s b u y i n g p r i c e s a r e examined.  Although  the s i z e o f t h e gambles i n c r e a s e from one i t e m t o t h e next i n m u l t i p l e s o f 10 ( i . e . , t h e p o s s i b l e w i n o f i t e m 2 i s $20.00 while f o r item 1 i t i s 2.00), the buying p r i c e s o f the subjects do n o t i n c r e a s e i n t h e same p r o p o r t i o n . Stock P r i c e Wagers A.  The s u b j e c t ' s t o p c h o i c e  (where he i n d i c a t e d rank one)  i s c o n v e r t e d i n t o t h e v a r i a n c e o f t h e gamble chosen; t h i s i s made i n t o a p r o p o r t i o n a l form (as a p r o p o r t i o n o f t h e l a r g e s t v a r i a n c e i n t h e s e t } which i s s u b t r a c t e d from one; and t h e p r o p o r t i o n i s m u l t i p l i e d by t h e rank o f t h e i t e m chosen (rank i n d i c a t e s o r d e r by s i z e o f v a r i a n c e where t h e l a r g e s t v a r i a n c e i s g i v e n a rank o f 0 ) .  The Stock P r i c e Wager i s t h e sum o f t h e  "ranked p r o p o r t i o n s " from t h e f i v e s e t s . B.  The d i s t r i b u t i o n o f s t o c k p r i c e wager s c o r e s i s i l l u s -  t r a t e d i n F i g u r e 6-14. scores.  We can see t h a t t h e r e a r e no z e r o s as  T h i s i m p l i e s t h a t no one chose t h e gamble w i t h t h e  l a r g e s t variance i n a l l the sets.  The mean o f 2.?4 (by b r e a k i n g  t h i s down i n t o t h e ranks and p r o p o r t i o n s ) suggests  t h a t on t h e  average t h e s u b j e c t s chose t h e t h i r d - s m a l l e s t - v a r i a n c e gamble. In a l l s e t s (except t h e one i n v o l v i n g t h e 62$ b e t s ) , t h i s r e f e r s t o t h e wager w i t h a 62$ chance o f w i n n i n g .  However, whether t h i s  i s an i n d i c a t i o n o f g e n e r a l p r o b a b i l i t y p r e f e r e n c e remains t o  104 FIGURE 6-14 H i s t o g r a m , Stock P r i c e Wager Scores  No. of Subjects l o  22.9% I 7 A 5 S  15.3%  11.4%  11.4%  2.9%  2-9%  1.33  1.67  2.33  Meani 2.74 Modei 4.000 Mediani 2.57 Variance! 0.733 Range.t 2.75  be j u s t i f i e d  Z.67  3.33  3.67  more risk averse  Or  4-.33  stock price wager sc.  ( i . e . , we cannot s a y t h a t 62$ i s t h e " f a v o u r i t e "  probability of the subjects).  The mode o f 4 . 0 0 0  (22.9$) sug-  g e s t s t h a t t h e r e a r e 8 s u b j e c t s who p r e f e r r e d t h e s u r e $ 2 . 0 0 throughout. C. to t h e i r  The s u b j e c t s were asked t o r a n k t h e f i v e s e t s  according  desirability.  Table XIV g i v e s an i d e a o f how t h e s u b j e c t s a s s i g n r a n k s to these f i v e s e t s . j e c t s as number 1.  Set C i s chosen by t h e m a j o r i t y o f t h e subT h i s can be e x p l a i n e d by t h e f a c t t h a t C i s  t h e o n l y s e t i n t h e Stock P r i c e Wager q u e s t i o n n a i r e , w h i c h o f f e r s expected values g r e a t e r than $ 2 . 0 0 three  sets).  (the expected v a l u e f i x e d f o r  105  TABLE XIV O v e r a l l S e t Rankings Distribution  Set  RANK 1  2  4  3  5  Median .....  ...... .  Frequency R e l a t i v e A B C D E  8.6  18.2  57.6 3.0 9.1  33.3 9.1  24.2  9.1  24.2  27.3  18.2  9.1  36.4  12.1  24.2 18.2  6.1 27.3  24.2  6.1  36.4 3.0  24.2  30.3  2.778 3.75 1.368 3.55 3.687  Based on t h e median, t h e l e a s t l i k e d s e t seems t o be S e t B w h i c h o f f e r s a f i x e d expected v a l u e and p o s s i b l e g a i n b u t has an o p t i o n w i t h a p o s s i b l e l o s s o f $ 7 0 . 0 0 .  On an o v e r a l l b a s i s ,  t h i s r e s u l t i s a rough i n d i c a t i o n o f l o s s m i n i m i z a t i o n b e h a v i o r . I f one l o o k s a t how t h e rank l ' s a r e d i s t r i b u t e d t h r o u g h o u t t h e s e t , s e t D has t h e l e a s t number o f l ' s .  This i n d i c a t e s that  f o r the majority of subjects s e t D i s not the top choice, i n t h a t t h e y do n o t p r e f e r t h e expected v a l u e t o be l e s s t h a n  $2.00  even though i t i n c r e a s e s as t h e p r o b a b i l i t y o f success i n c r e a s e s . In u s u a l m u l t i a t t r i b u t e c h o i c e making, t h e r e i s a dominance r u l e w h i c h s t a t e s t h a t t h e c h o i c e , w h i c h has a more d e s i r a b l e v a l u e i n one o f i t s a t t r i b u t e s w h i l e t h e r e s t o f t h e a t t r i b u t e s a r e s i m i l a r i n v a l u e t o t h o s e o f o t h e r c h o i c e s , i s chosen.  In  Set D, i f t h e dominance r u l e f o l l o w s , t h e i n i t i a l h y p o t h e s i s i s t h a t i t e m 5 (sure amount o f $ 2 . 0 0 ) s h o u l d be chosen as t o p c h o i c e i n t h e s e t because t h i s c h o i c e dominates.  T h i s i s drawn  106 from t h e n o t i o n t h a t more c e r t a i n t y o f g a i n i n g i s p r e f e r r e d t o l e s s c e r t a i n t y o f g a i n i n g ( a l l o t h e r t h i n g s b e i n g t h e same) and g r e a t e r e x p e c t e d v a l u e i s p r e f e r r e d o v e r l e s s expected v a l u e . Table XV i n d i c a t e s t h a t t h e v a l u e o f t h e median d e c r e a s e s from the f i r s t t o t h e l a s t i t e m . reverse diagonal.'  A l s o , t h e mode r a n k s a r e ' i n t h e  This confirms the b e l i e f that the s u b j e c t s ,  i n general, followed the rule. t h o u g h t out t h e i r c h o i c e s  T h i s shows t h e s u b j e c t s r e a l l y  well. TABLE XV  Set D D i s t r i b u t i o n o f Ranks R e l a t i v e Frequency —>__Value Item No. -— 1  2 3 5  4  . ™  ' 1  8.6 8.6 11.4 14.3 58.8  82.6 14.3 14.7 51.4  11.4  3 2 .9 11.4  Median  685.6 4.229 65.7 3.33 11.4 65.7 5.7 11.4 2 . 9 2.714 14.3 14.7 2 8.8 2.9 2.6.0300 11.4  —  TABLE XVI Set C D i s t r i b u t i o n o f Ranks Item "TT—-Rank No. —-— 1 2 3 4 5  1 28.6 14.3 20.0 17.1 20.0  2 20.0 20.0 14.3 20.0  25.7  3 20.0 14.3 40.0 22.9 2.9 Relative  4 8.6 22.9  25.7  37.1 5.7  5 22.9 28.6 —  2.9 45.7  Frequencies  Median 2.771  3.31^  2.714 2.88 3.314  10? Table XVI g i v e s us an i d e a o f how S e t C, t h e m a j o r i t y ' s Only 20$ o f  f a v o r i t e s e t , i s responded t o by t h e s u b j e c t s .  t h e s u b j e c t s r a n k e d t h e item(5) w i t h t h e h i g h e s t e x p e c t e d v a l u e as 1.  The r e s u l t s o f t h e above d i s t r i b u t i o n r e v e a l t h a t t h e  expected v a l u e c r i t e r i o n i s not t h e s o l e c r i t e r i o n .  We s h a l l  d i s c u s s t h e s t r a t e g i e s i n d i v i d u a l s u b j e c t s employed i n E. D.  T a b l e X V I I g i v e s us t h e r e s u l t s o f t h e i n t e r c o r r e l a -  t i o n s o f t h e aggregate wager s c o r e and t h e f i v e s e t s ' t o p c h o i c e scores. TABLE X V I I Correlation Matrix Stock P r i c e Wager Scores Set  A  A B C D E Ag. Score  B  C  D  E  Ag. Score  (.37)  (.43) .07  (.55) .25 (.39)  .18  (.708) (.551) (.73) (.74) (.53)  (.34) (.52) .10  C o e f f i c i e n t s enclosed i n parenthesis are s i g n i f i c a n t a t .05 l e v e l .  Set B and Set C do n o t seem t o be as h i g h l y ' d e s i r a b l e ' as t h e r e s t i n terms o f t h e number o f s i g n i f i c a n t  correlation  coefficients. The k i n d o f a n a l y s i s we j u s t p r e s e n t e d above i s d i f f e r e n t from t h e way we conducted t h e a n a l y s e s on t h e r e s t o f t h e meas u r e s because i n s t e a d o f i t e m s , we used s e t s .  T h i s may be  j u s t i f i e d because t h e items i n t h e s e t a r e so i n t e r r e l a t e d w i t h one a n o t h e r t h a t i t would be s e n s e l e s s t o t a l k about  removing  108 items r a t h e r than s e t s . The l o w c o r r e l a t i o n o f Set E w i t h t h e r e s t i s u n d e r s t a n d a b l e from t h e p o i n t  o f v i e w t h a t t h e d i f f e r e n t format o f E's  i t e m s may have i n d u c e d such a r e s u l t .  This suggests that t h e  items i n S e t E s h o u l d be r e v i s e d i n such a way t h a t i t conforms w i t h t h e format o f t h e r e s t o f t h e s e t s .  As f o r Set B, t h e low  c o r r e l a t i o n w i t h Set C and D i s unexpected. some o t h e r c o n s i d e r a t i o n s  were i n c o r p o r a t e d  t o B as compared t o t h e r e s t o f t h e s e t s . cannot be i s o l a t e d .  The major d i f f e r e n c e  This suggests that i n t h e i r responses These  considerations  o f Set B w i t h t h e  rest of the sets l i e s i n the s i z e of the largest possible ($70.00).  Whether t h i s d i f f e r e n c e causes t h e r e s u l t s t h a t we  g o t o r n o t cannot be E.  loss  ascertained.  The f o l l o w i n g s t r a t e g i e s a r e examined t (1) (2) (3) (4) (5)  Choosing t h e a l t e r n a t i v e the most money. Choosing t h e a l t e r n a t i v e the l e a s t money. Choosing t h e a l t e r n a t i v e p r o b a b i l i t y of success. Choosing t h e a l t e r n a t i v e variance. Choosing t h e a l t e r n a t i v e one l i k e s .  A (1) s t r a t e g y  t h a t would e a r n t h a t would  lose  with the l e a s t with the greatest with the p r o b a b i l i t y  implies choosing the a l t e r n a t i v e with the  l a r g e s t amount o f p o s s i b l e g a i n .  The l a r g e s t p o s s i b l e g a i n i s  i n Set C (item 5 w i t h a p o s s i b l e g a i n o f $70.00).  As we s a i d  b e f o r e (see Table XXVlJ 20$ (or 7 s u b j e c t s ) chose t h i s a l t e r n a t i v e . L o s i n g t h e l e a s t money may be i n t e r p r e t e d as c h o o s i n g t h e sure t h i n g  ( p o s s i b l e l o s s = 0.0) o r l o s i n g t h e $1.10 i n t h e  wager o p t i o n s o f S e t B.  F o r t h e f i r s t i n t e r p r e t a t i o n , 9 chose  109 t h e s u r e t h i n g most o f t h e time  (2 o f t h e s e d e v i a t e d i n Set B  i n t h a t t h e y chose t h e 'both win* a l t e r n a t i v e — i . e . , w i n o f $10.00 o r a w i n o f $1.40).  As f o r t h e second  interpretation,  t h i s would mean c h o o s i n g i t e m 3 i n Set B as rank 1.  Nine sub-  j e c t s chose t h i s a l t e r n a t i v e as t h e i r o v e r a l l c h o i c e (which was not played o u t ) . Strategy  (3) s u g g e s t s t h a t t h e s u b j e c t s would choose t h e  7$ p r o b a b i l i t y o f s u c c e s s .  Only 3 s u b j e c t s chose t h i s  level  most o f t h e t i m e ( i . e . , except f o r Set D and f o r t h e two s e t s whose l o s s e s were n o t c o n s t a n t t h r o u g h o u t ) . As f o r S t r a t e g y ( 4 ) , no one c o n s i s t e n t l y used t h i s s t r a t e g y i n the sets.  F i v e s u b j e c t s chose t h e o p t i o n s w i t h t h e l a r g e s t  v a r i a n c e i n some s e t s .  The o p t i o n , among t h e r e s t , w i t h t h e  g r e a t e s t v a r i a n c e i s i t e m 1 o f S e t B.  No one has ranked t h i s  i t e m as t h e i r f i r s t c h o i c e among t h e o t h e r o p t i o n s i n t h e same set. P r o b a b i l i t y p r e f e r e n c e i s a l s o examined.  We i n d i c a t e d be-  f o r e t h a t 62$ c o u l d be t h e ' f a v o r i t e ' p r o b a b i l i t y o f t h e subjects.  Ten s u b j e c t s chose t h i s l e v e l most o f t h e t i m e b u t f i v e  of t h e s e chose t o m i n i m i z e l o s s  (sure t h i n g o r l e a s t l o s s ) when  t h e ' l o s e ' amount v a r i e d from one i t e m t o a n o t h e r . I f e x p e c t e d v a l u e i s t h e s o l e c r i t e r i o n employed f o r some s u b j e c t s , t h e i r responses t o S e t C would i n d i c a t e t h i s r a n k s f o r t h e r e s p e c t i v e items would b e t  (i.e.,  5, 4, 3, 2, 1 ) . A  Spearman r h o c o e f f i c i e n t i s c a l c u l a t e d f o r each s u b j e c t b u t because o f t h e number o f i t e m s , we can o n l y a c c e p t a r h o o f 1.0 as i n d i c a t i o n o f EV m a x i m i z i n g . o f 1.0.  Only t h r e e s u b j e c t s have r h o ' s  110 Variance Preference not observed  ( o r some f a v o r i t e v a r i a n c e l e v e l ) i s  i n t h e group.  V a r i a n c e M i n i m i z a t i o n i s a l s o e x a m i n e d — t h o u g h a b i t crude. The average v a r i a n c e s o f t h e gambles i n each s e t i s d e r i v e d . The s e t s i n t u r n a r e ranked a c c o r d i n g t o t h e s i z e o f t h e average variance  (where 1.0  n e x t and so o n ) .  T h i s k i n d o f r a n k i n g i s i n t u r n compared w i t h  the ranks generated puted.  i s g i v e n t o t h e l o w e s t v a r i a n c e , 2.0 t o t h e  by t h e s u b j e c t s .  The Spearman r h o i s com-  The r h o * s , i n o r d e r t o be s i g n i f i c a n t , s h o u l d be  None a r e found t o be s i g n i f i c a n t .  1.0.  However, 21 o f t h e 33 com-  p l e t e d s e t r a n k i n g s , have n e g a t i v e rho's  ( r a n g i n g from -0,89 t o  -0.01) w h i l e 12 have p o s i t i v e c o r r e l a t i o n ( r a n g i n g from 0.90 t o 0.10). . Thus, from t h e r e s u l t s i t seems t h a t t h e s t r a t e g y employed most o f t h e time  (39$ o f t h e s u b j e c t s ) i s c h o o s i n g t h e a l t e r n a -  t i v e with the f a v o r i t e p r o b a b i l i t y .  However, based on t h e 30$  who employed t h i s s t r a t e g y , t h i s cannot be c l a i m e d t o be g e n e r a l f o r t h e group. E x t r e m i t y Confidence A.  i n Judgment  The aggregate e x t r e m i t y s c o r e f o r each s u b j e c t i s t h e  average squared d e v i a t i o n o f t h e i t e m chances from f i f t y .  The  c o n f i d e n c e s c o r e i s t h e average c o n f i d e n c e v a l u e s u b j e c t s a s s i g n e d t o t h e f i f t e e n i t e m s . ( t h e code b e i n g 1 f o r Very Sure, 2 f o r Quite Sure, and so o n ) . B.Figure  6-15 g i v e s us an i d e a o f how. t h e e x t r e m i t y  s c o r e s a r e d i s t r i b u t e d , w h i l e F i g u r e 6-16 fidence score  distribution.  summarizes t h e con-  Ill  The e x t r e m i t y s c o r e , on t h e a v e r a g e , i s thus l o w as e v i denced by t h e d i s t r i b u t i o n .  T h i s i m p l i e s t h a t t h e s u b j e c t s do  not t a k e h i g h r i s k s c o n c e r n i n g knowledge.  They a r e a l s o moder-  a t e l y c o n f i d e n t i n t h e i r r e s p o n s e s as r e v e a l e d by t h e mean confidence score. FIGURE.6-15 Histogram  o f Extremity  Scores  36.2%  13  .3*3%  No. of Subjects  10  -  14.3% 8.6% 29%  i  o  OS  •IO  .iasr  1  •75  more risk, averse Means 0.082 V a r i a n c e i 0.001 Range i 0.128 Mediant .078  225  -25  extremity  score  112 FIGURE 6-16 Histogram,  Confidence  Scores  No. of Subjects  VO  25.736%  ZS.7%  14.34-3%  14.3%  8.6%  5.86% O.S  I.O  Mean i 3.05 V a r i a n c e J . 0.39  C.  i _ J3.5  15  3 z.o 2.5 % »ess confident  1  Range t 2.6 -Median i 3.11  4.o  4.er  5  confidence sc.  Item 13 concerns t h e assignment o f t h e chances t h a t  an American m o t o r i s t w i l l have a s e v e r e c a r a c c i d e n t on t h e U.S. highway t h i s Sunday. as e v i d e n c e d  This i s i n t e r e s t i n g l y  distributed  by F i g u r e 6-17, w h i c h d e p i c t s t h e d i s t r i b u t i o n o f  chance assignments,  and by F i g u r e 6-18, t h e r e s u l t a n t e x t r e m i t y  score d i s t r i b u t i o n o f t h i s  item.  113 FIGURE 6-17 H i s t o g r a m , Chance Assignment Item 13  Distribution  58%  No. of  20  Subjects  is to  •10  ZO  Meant .4168 V a r i a n c e t .16.54.  I  19%  30  I  ?.9%  AO  Mediant Range t  Z.9% 2.9%  .50  .03 1.00  1 •<oO  1  •TO  1  80  •90  1O0  chance  The s t r a n g e d i s t r i b u t i o n o f t h e responses t o Item 13 be a t t r i b u t e d t o m i s i n t e r p r e t a t i o n .  may  Instead of reading the  i t e m as 'An American t a k e n a t random,' t h e i n t e r p r e t a t i o n has e i t h e r been 'a p a r t i c u l a r American m o t o r i s t * o r 'one American motorist.'  T h i s i t e m ' s a m b i g u i t y must be c o r r e c t e d by a d d i n g  the phrase ' t a k e n a t random.'  114 FIGURE 6-18 H i s t o g r a m , E x t r e m i t y Scores Item 13  86%  40  No. of Subjects 30  20  IO  58%  5.8%  2.9% O.025  O.Q5  Meant .235 Mediant. .227  .125  •075  •IO  more  H S K averse  4  .15  •175  .2  ."ST  .25-  extremity score  Range t .221 Variancei .189  Table X V I I I g i v e s us t h e breakdown o f t h e c o n f i d e n c e s c o r e f o r t h i s item. age i s h i g h .  The c o n f i d e n c e s c o r e f o r t h i s i t e m on t h e a v e r B u t , due t o t h e s u b j e c t s ' p o s s i b l e m i s i n t e r p r e t a -  t i o n , we cannot r e l a t e t h e c o n f i d e n c e s c o r e t o t h e e x t r e m i t y score.  T h i s item's average c o n f i d e n c e s c o r e i s t h e h i g h e s t  among t h e i t e m s .  115 .TABLE X V I I I C o n f i d e n c e S c o r e , Item 13 Value  Absolute Frequency  Relative Frequency  1 2 3 4 5  17 7 6 4 5  48.6 20.0 17.1 11.4 2.9  Meant 2.000 Modet 1.000 V a r i a n c e t 1.-412  Item 6, c o n c e r n i n g t h e chances t h a t a Canadian woman w i l l a b s t a i n t o t a l l y from a l c o h o l i c beverage i s a n o t h e r i n t e r e s t i n g i t e m i n t h a t t h e average a s s i g n e d chance i s .198.  Figure  6-19  i l l u s t r a t e s how t h e s e chances a r e d i s t r i b u t e d . FIGURE  6-19  H i s t o g r a m , Chance Assignments Item 6  .40  Median t 9.7$ Ranget .68 Variancet .127  .50  .60  70  .80  .QO  cnance  t.OO  116 Thus, on a v e r a g e , s u b j e c t s b e l i e v e d t h a t t h e r e i s a s l i m chance t h a t a Canadian woman w i l l a b s t a i n from a l c o h o l i c b e v e r age;  The mean c o n f i d e n c e f o r t h i s i t e m i s 2.6 which i s a l i t t l e  b e t t e r t h a n ' M o d e r a t e l y Sure.* TABLE XIX C o n f i d e n c e Score Item 6  D.  Value  Absolute Frequency  Relative Frequency  1 2 3 4 5  3 13 11 6 2  8.6 37.1 31.4 17.1 5.7  Table XX g i v e s us an i n d i c a t i o n o f t h e s t r e n g t h o f  a s s o c i a t i o n between t h e a g g r e g a t e e x t r e m i t y s c o r e and t h e i t e m , and t h e i n t e r c o r r e l a t i o n s o f t h e i t e m s w i t h one a n o t h e r . item extremity score c o r r e l a t i o n s a r e not encouraging.  InterHow-  e v e r , except f o r items 4, 8, 9 and 14, t h e c o r r e l a t i o n o f t h e i t e m s c o r e w i t h t h e aggregate s c o r e i s s i g n i f i c a n t a t t h e 0.05 level. Item 4 s u n i q u e n e s s i s apparent from t h e T a b l e XX. (  Thus,  u s i n g t h e c r i t e r i o n o f b a s i n g i t e m v a l i d i t y on t h e r e s u l t i n g c o r r e l a t i o n w i t h t h e a g g r e g a t e s c o r e i m p l i e s t h a t i t e m s 4, 8, 9 and 14 a r e p o s s i b l e c a n d i d a t e s f o r r e j e c t i o n .  Item 6 (con-  c e r n i n g a Canadian woman a b s t a i n i n g from a l c b h b l ) i s a n o t h e r c a n d i d a t e f o r r e j e c t i o n even though i t s c o r r e l a t i o n w i t h t h e aggregate score i s s i g n i f i c a n t  (see C ) .  TABLE XX C o r r e l a t i o n Matrix Extremity Scores Item 1 2 3 4  5 6 7 8 9 10  1 2 .1114  3  4  (.285)  .09?  0.051  (.324) .02  5  6  7  8  (.48) (.29) - 0 . 0 3 -0.04 .17 ' .20 .09  0.07  .24  9 -0.11  12  11  -0.04  0.09  .231 --0.05  (.29)  .10  .25  -0.02  .11  -.11  .18  .26  -.20  .09  .08  -.14  -.14  .18  -.21  .24  (.36)  .12 -0.02 .19 -.27  -.04 -•0.13  -.17  -.15  14  15  .105 .002 .28  .26  . 0 7 -0.09 -•0.03  .26  Ave. Score (0.376) (.645) (.33) .26  .23  • 30  .24  .08  -.002  -.07  (.493)  -.18  (.34)  (.33)  • 13  .001  .01  -.27  (0.328)  (•3D  -.12  -.19  (-.28)  -0.16  .048 -.24  -.12  -.19  --0.002  .018  (.469)  (.3004)  .05  .21  -.27  (-.28)  .004  (.324) .063  .052  .03  .13  -.04 -0.012  (.311)  .017  .13  (.323)  11 12  • 13  -.09  .24  -.13  10  .  - -  (.35D -.08  14  -0.0114  .27  -.19  -.04-  .21  (.36)  .007  (.36)  -.010  .202  .13  13  -.16  (.47)  (.32)  15 Ave. Score C o r r e l a t i o n c o e f f i c i e n t s (Pearson) are s i g n i f i c a n t a t the 0 . 0 5 l e v e l when enclosed i n parenthesis.  TABLE XXI Correlation Matrix Confidence Scores  >  Item  2  3  4  (.48)  .25  .20  1  1 2  (.59) (.42).  5  (.39) (.35) .25  3  (.42) (.35)  4  (.63)  5  6 7  7  8  9  .13  .18  .16  .05  (.43)  (.40). .26  (.52);  (.35) (.45) .23  11  .22  (.38),.-.05  (.37)> .26  (.56)  .20.  14  15  Ag.. Score  .18  .13.  .21  (,54);  .14.  .07. (.30). (.62),  .15  .04.  ( . 4 3 ) ; (.31.); ( . 4 3 ) ,  •  (.76).  (.45)  (.31)  (.30),  .17  .26  .25  (.67).  .26  .23  .18  .02  .22  .05  .28  .14  .16  (.55);  .22  .21  . 0 3 -.09  (.43) (.45). ( . 5 4 )  (.32)  .15  .16  .28  -.01  .22  (.38)  .09  .18  .22  .2?  (.64)  .11.  .31.  (.43)  (.63).  (.37).  ;  (.39).. (.39), .13.  13  (.63),  .27.  .09  12  .18  .22  (.51)  11  (.33);.  13  .18  (.41) (.33)  10  12  ( . 3 0 ) (.39)...26  (.52).  .20  9  10  (.49) (-39). .16 (.57) • ( . 3 8 ) :  -.02 (.46)  8  1^  6  (.56),  (.65)  .0.  .21  (.37).  .23  .12  (.42).  •  15  Ag. Score Correlation coefficients enclosed i n parenthesis are significant at . 0 5 level.  (.42); (,.45),  119 Table XXI r e v e a l s t o us t h e i n t e r c o r r e l a t i o n s o f t h e fidence scores. aggregate  con-  A l l are s i g n i f i c a n t l y c o r r e l a t e d w i t h t h e  confidence score.  I n t e r - i t e m confidence score cor-  r e l a t i o n s a r e s i g n i f i c a n t f o r some but a few o f the r e s t a r e not  significant. But one must remember t h a t c o n f i d e n c e and e x t r e m i t y s c o r e s  a r e used j o i n t l y so t h a t r e j e c t i o n o f one i t e m i n the q u e s t i o n n a i r e means r e j e c t i o n o f the c o n f i d e n c e and e x t r e m i t y s c o r e s f o r that item. E.  F o l l o w i n g Kogan and W a l l a c h  (1964), an a n a l y s i s w h i c h  d i v i d e s e x t r e m i t y s c o r e s under h i g h c o n f i d e n c e Sure) and low c o n f i d e n c e undertaken.  The  (Very  Sure-Quite  ( S l i g h t l y Sure-Not Sure a t A l l ) i s  e x t r e m i t y s c o r e s o f the s u b j e c t s under h i g h  c o n f i d e n c e range from .25  t o 0.0  under low range from 0.17  to  w h i l e the extremity score  0.0.  Kogan and W a l l a c h a s s e r t e d t h a t 'one t a k e s g r e a t e r r i s k s (or h i g h e r e x t r e m i t y s c o r e ) when one i s more c o n f i d e n t . * For each s u b j e c t , the d i f f e r e n c e o f the s c o r e s between t h e two c o n d i t i o n s i s t a k e n ;  These d i f f e r e n c e s a r e added up  i n o r d e r t o u t i l i z e the t s t a t i s t i c s .  The r e s u l t i n g t i s O.769  w i t h 34 degrees o f freedom and i m p l i e s t h a t t h e d i f f e r e n c e i s not s i g n i f i c a n t , a l t h o u g h 30 o f t h e s u b j e c t s have h i g h e r ext r e m i t y scores under low  (mean i s about .097)  (mean = .0092).  T h i s may  p o o l e d s t a n d a r d d e v i a t i o n (.032). i s concerned,  under h i g h c o n f i d e n c e  than  be due t o t h e s i z e o f t h e Thus, as f a r as our group  we must r e j e c t Kogan and Wallach's  c o n c e r n i n g c o n f i d e n c e and r i s k t a k i n g .  hypothesis  120 The c o r r e l a t i o n o f t h e average c o n f i d e n c e s c o r e w i t h t h e squared e x t r e m i t y i s n o t s i g n i f i c a n t  ( r = -0.003)•  The same  i s t r u e w i t h t h e r between c o n f i d e n c e s c o r e and t h e a l t e r n a t e extremity score  ( r = -0.006).  T h i s a g a i n i s an i n d i c a t i o n t h a t  confidence score i s not a t a l l r e l a t e d t o r i s k t a k i n g . Event Occurrence and A c t i v i t y I n t e r e s t A. The  Two s c o r e s a r e g e n e r a t e d from t h i s q u e s t i o n n a i r e .  i n t e r n a l c o n t r o l s c o r e i s j u s t t h e sum o f t h e i n t e r n a l -  c o n t r o l - o r i e n t e d a l t e r n a t i v e s chosen by t h e s u b j e c t w h i l e t h e optimal s t i m u l a t i o n score sum  (or s e n s a t i o n s e e k i n g s c o r e ) i s t h e  o f t h e ' s e n s a t i o n s e e k i n g ' o r i e n t e d a l t e r n a t i v e s chosen. B.  F i g u r e 6-20 and F i g u r e 6-21 d e p i c t t h e d i s t r i b u t i o n s  o f t h e s e two s c o r e s . FIGURE 6-20 H i s t o g r a m , I n t e r n a l C o n t r o l Scores  No. „ of 0 Subjects 2  34.3%  20.0%  g.9%  S.7%  Q.6%  more, eidWnally^confroilecf Meanj 6.314  Mediani  Variancei  6.625  3.163  8.6%  114% 5.7%  8  *.9%  IE SCORE  more internaly>contr.  121 FIGURE 6-21 Histogram S e n s a t i o n Seeking  No. of Subjects  Scores  34.3%  II  \o 20.0% 171%  6 5  n.4-% 86% 5.7% 2.9%  less sensation s.<-  3  Meani 4.628 Mediant 4.458 Variancet 2.29  1  * "* more sensation seeking  SS SCORE  The i m p l i c a t i o n o f t h e above i s t h a t t h e s t u d e n t s a r e more i n t e r n a l l y c o n t r o l l e d t h a n they a r e s t i m u l a t i o n - s e e k i n g . On t h e whole, i t may be argued t h a t t h e Master's s t u d e n t s do p e r c e i v e g r e a t e r l o c u s o f c o n t r o l i n human a f f a i r s . do'-.not seem t o seek 'excitement*  But t h e y  from s t i m u l a t i n g events o r  social intercourse. C. and  We break t h e items i n t o two c a t e g o r i e s t  Sensation Seeking.  IE Control  F i g u r e 6-22 g i v e s us a p i c t u r e o f how  t h e s u b j e c t s respond t o each i t e m .  122 FIGURE 6-22 Histogram, Responses f o r Each Item  No. of Int. C o n t r o l 30 Alt. Chosen  29  28 24  22  21  20  Zo  I5 ! -  ll  >  3  5  'less IE chosen.  Items 9, 13t  9  13  15  17  19  ITEM  and 17 concern c o n t r o l i n p e r s o n a l  N O  life  ( t r u s t i n g t o f a t e n o t t u r n i n g o u t w e l l i n i t e m 9; almost c e r t a i n t h a t p l a n s made by s e l f can be made t o work i n i t e m 13; and 'what happens t o me i s my own d o i n g ' i n i t e m 17)• The l e a s t p e r c e i v e d c o n t r o l i s i n i t e m 19 c o n c e r n i n g f o r t u n e and people i n g e n e r a l .  Thus, t h e s u b j e c t s f e l t t h a t t h e y had g r e a t -  e s t c o n t r o l over t h e i r p e r s o n a l l i v e s and l e s s c o n t r o l  over  w o r l d a f f a i r s , government d e c i s i o n s and o t h e r p e o p l e ' s  lives  (items 11, 15,  etc.).  123  F i g u r e 6-23 shows us how t h e s e n s a t i o n - s e e k i n g items a r e answered. FIGURE 6-23 Histogram, SSS Response f o r Each Item  No. o f 30 SSS alternatives chose  \o  12.  14-  \&  18  ZO  ITEM  NO.  Items 4, 12, 18 and 20 e l i c i t e d t h e l e a s t number o f SSS responses. vities  Items 4, 18 and 20 a r e concerned  with social  acti-  ( e . g . , c h o o s i n g f r i e n d s who a r e r e l i a b l e and p r e d i c t a b l e  o r n o t , e n j o y i n g o r d i s l i k i n g r o u t i n e works, and p r e f e r r i n g p e o p l e who a r e calm and even tempered o r n o t ) .  Item 12 may be  c o n s i d e r e d as s e n s u a l s t i m u l a t i o n ( i . e . , whether one d i v e s into a cold pool or gradually sinks into i t ) .  The items where  t h e s u b j e c t s f e l t they s h o u l d be more s e n s a t i o n - s e e k i n g cern t r a v e l l i n g .  We c o u l d say t h a t because o f t h e s e  con-  results,  124 t h e s u b j e c t s are most s t i m u l a t e d by t r a v e l l i n g and l e a s t by s o c i a l D.  14)  activities.  Because o f the way  the IE-SSS s c o r e s are coded f o r  computer a n a l y s i s , o n l y aggregate available.  (items 8,  s c o r e s f o r each p e r s o n  However, an i n d i c a t i o n o f i t e m v a l i d i t y may  are be  se-  c u r e d from R o t t e r ' s (1966) r e s u l t s and from the b i s e r i a l c o r r e l a t i o n t a b l e Zuckerman, et a l . (1964) p r o v i d e d . Table X X I I and Table X X I I I have been reproduced s t u d i e s conducted  by R o t t e r and Zuckerman.  The  from the  i t e m nos. r e -  f e r r e d t o i n the t a b l e s a r e the i t e m numbers as they appeared i n our q u e s t i o n n a i r e .  The b i s e r i a l c o r r e l a t i o n s o f the  IE  items are much b e t t e r t h a n those o f the SS i t e m s . Item 91 a l t h o u g h i t e l i c i t e d h i g h I n t e r n a l C o n t r o l r e s p o n s e s , as shown from R o t t e r ' s , i s one o f the p o o r e s t among the I E i t e m s . biserial  Item 19»  i n the same v e i n , doesn't have h i g h  correlation.  As f o r t h e SS i t e m s , i t e m 4 and i t e m 14 a r e , based on the t a b l e , the p o o r e s t . I f one d e s i r e s t o reduce the number o f items i n t h i s quest i o n n a i r e , the c a n d i d a t e s a r e t h e items mentioned i n t h i s subsection. E. seeking' ?  Are e x t e r n a l l y c o n t r o l l e d i n d i v i d u a l s l e s s ' s e n s a t i o n T h i s q u e s t i o n i s r a i s e d w i t h the i n i t i a l b e l i e f t h a t  i n d i v i d u a l s who  f i n d t h a t most events are beyond t h e i r  do not seek s t i m u l a t i o n from u n p r e d i c t a b l e s o c i a l t r a v e l l i n g without guides, etc.  control  acquaintances,  I n s t e a d , they p r e f e r the  n o t i o n o f a ' q u i e t ' l i f e knowing t h a t they a r e b e i n g  externally  TABLE X X I I The I E S c a l e w i t h C o r r e l a t i o n s o f Each Item w i t h T o t a l S c o r e , E x c l u d i n g t h a t Item* Item No.  1 3 5 7 9 11 13 15 17 19 Reproduced  Biserial  Item C o r r e l a t i o n s  200M  400M+F  .265 .345 .238 .391 .152 .313 .313 .295 .331  .460 .319 .289 .301 .164 .357 .265 .307 .238 .152  .108 from R o t t e r  (1966) n = 400.  TABLE X X I I I SS S c a l e w i t h C o r r e l a t i o n s o f Each Item with Total Score, Excluding that Item 2  Item No.  2 4  6 8 10 12 14  16 18 20 .  Biserial  Item C o r r e l a t i o n s  .270 .155 .318 .391 .307 .192 .152 .185 .229 .271  Zuckerman, e t a l . (1964) n = 180.  126 c o n t r o l l e d anyway.  On t h e o t h e r hand, p e o p l e who p e r c e i v e  g r e a t e r l o c u s o f c o n t r o l over t h e i r l i v e s a r e perhaps those who a l s o seek h i g h e r s t i m u l a t i o n l e v e l s . The  c o r r e l a t i o n o f I E Scores w i t h SS Scores f o r our group  i s -0.032 (p > 0.05).  Thus, t h e n o t i o n i s n o t c o n f i r m e d .  i s p o s s i b l e t h a t t h e u n d e r l y i n g dimensions  It  o f t h e SS items a r e  not t h e ones t h a t t h e s u b j e c t s p e r c e i v e t o c o n t r i b u t e t o s t i m u lation-seeking.  The items t h a t s u b j e c t s have low SS responses  t o a r e t h o s e w h i c h concern c h o i c e o f s o c i a l a c q u a i n t a n c e s . they f e l t t h a t t h e y s h o u l d have c o n t r o l over s o c i a l  If  acquain-  t a n c e s , t h e y might n o t p r e f e r u n p r e d i c t a b l e f r i e n d s o r emot i o n a l l y e x p r e s s i v e but unstable p e r s o n a l i t i e s  (see F i g u r e 6-23).  However, based on o u r r e s u l t s , t h e two c o n s t r u c t s a r e n o t related at a l l . Discussion Analyses o f the d i s t r i b u t i o n s o f s u b j e c t s ' r i s k  scores  have been d i s c u s s e d t o g e t h e r w i t h some rough i t e m a n a l y s e s . The a n a l y s e s i n d i c a t e d t h a t some items s h o u l d be r e v i s e d o r removed.  The r e s u l t s a l s o suggest t h a t t r i m m i n g i s n e c e s s a r y .  Some items w h i c h a r e l e s s b u s i n e s s r e l e v a n t s h o u l d n o t be i n cluded etc.).  (e.g. i t e m 3 o f Choice Dilemma, i t e m 2 o f I n - B a s k e t , Items w h i c h do n o t seem t o d i s c r i m i n a t e t h e r i s k t a k e r s  from t h e r i s k a v e r t e r s a r e e i t h e r s u b j e c t t o r e v i s i o n o r t o total elimination In-Basket,  etc.).  (items 4 and 5 o f S c a l e o f Wager, i t e m 5 o f  127  A l s o , f o r each measure, some o f t h e p a s t hypotheses examined.  are  The s e v e r i t y o f consequences i s s u e i s not c o n f i r m e d  ( i . e . , p e o p l e who  p e r c e i v e the r i s k y a l t e r n a t i v e as more s e r i -  ous i n terms o f consequences do not n e c e s s a r i l y t e n d t o be l e s s risk-takers).  T h i s i s s u e i s examined f o r t h e In-Basket and t h e  Choice Dilemma measures.  In a d d i t i o n , Kogan and Wallach's con-  c l u s i o n s on t h e e x t r e m i t y - c o n f i d e n c e - i n judgment q u e s t i o n n a i r e a r e examined; t h e r e s u l t s o f t h i s s t u d y r e v e a l t h a t t h e e x t r e m i t y s c o r e s under h i g h c o n f i d e n c e a r e not s i g n i f i c a n t l y from t h o s e under low c o n f i d e n c e .  different  S t r a t e g i e s i n r i s k t a k i n g are  a l s o examined i n In-Basket and Stock P r i c e Wagers and found t o be h i g h l y  individualistic.  In Chapter 7,  an o v e r a l l a n a l y s i s o f t h e s e measures i s  u n d e r t a k e n by p r e s e n t i n g t h e c o r r e l a t i o n m a t r i x o f t h e r i s k measures and t h e f a c t o r a n a l y s e s r e s u l t s .  128  CHAPTER 7 OVERALL ANALYSIS OF RISK MEASURES Overview In o r d e r t o l o o k a t how t h e r i s k measures r e l a t e t o one another,  a c o r r e l a t i o n m a t r i x i s c o n s t r u c t e d and t h e i m p l i c a -  t i o n s are discussed. T h i s c h a p t e r a l s o p r e s e n t s us w i t h t h e f a c t o r a n a l y s e s o f t h e measures and d i s c u s s e s t h e r e s u l t s i n t h e l i g h t o f our expectations. An attempt a t m o d e l - b u i l d i n g  i s shown i n t h e l a t t e r  t i o n i n t h a t r i s k - t a k i n g , as measured by some o f t h e s e  sec-  instru-  ments, i s examined i n r e l a t i o n t o demographic v a r i a b l e s . C o r r e l a t i o n M a t r i x o f R i s k Measures T a b l e XXIV summarizes t h e s i g n i f i c a n t c o r r e l a t i o n s among the r i s k measures.  Spearman r h o ' s a r e used because we a r e  p r i m a r i l y i n t e r e s t e d i n t h e placement o f i n d i v i d u a l s as r i s k t a k e r s by t h e s e measures r a t h e r t h a n t h e v a r i o u s magnitudes. The p e r s o n a l i t y t y p e measures l i k e I E and SSS do not seem t o be r e l a t e d t o t h e r i s k measures. with the  IE i s negatively c o r r e l a t e d  Memo Score, s u g g e s t i n g t h a t t h e s t r a t e g y one  i s r e l a t e d t o one's p e r c e i v e d l o c u s o f c o n t r o l .  takes  This i m p l i e s  t h a t a p e r s o n who p e r c e i v e s more c o n t r o l i n h i s s i t u a t i o n s w i l l recommend a r i s k i e r s t r a t e g y .  This i s contrary t o the  n o t i o n t h a t more i n t e r n a l l y c o n t r o l l e d i n d i v i d u a l s a r e moderate  129 risk takers.  As f a r as SSS i s c o n c e r n e d , i t seems t h a t p e o p l e  "become more extreme i n t h e i r judgments when t h e y a r e more 'sensation-seeking.'  But t h e d i r e c t i o n o f c a u s a t i o n cannot  be a s c e r t a i n e d . E x t r e m i t y i n judgment i s c o r r e l a t e d i n t h e r i g h t  direction  only w i t h the rate o f r e t u r n u t i l i t y scores since higher t a k i n g i s r e f l e c t e d by h i g h e r e x t r e m i t y s c o r e s w h i l e  risk-  higher  r i s k t a k i n g i s r e f l e c t e d by l o w e r s c o r e s i n t h e r i s k measures like  In-Basket  and u t i l i t y s c o r e s .  duals, encountering  This suggests that  indivi-  a l t e r n a t i v e s where r a t e o f r e t u r n i s used  as an a t t r i b u t e measurement, w i l l be g r e a t e r r i s k t a k e r s when they a r e more extreme i n j u d g i n g event The  confidence  occurrences.  score, r e f l e c t i n g the confidence  l e v e l of  i n d i v i d u a l s , i s d e l e t e d from t h e m a t r i x as i t i s n o t s i g n i f i c a n t l y c o r r e l a t e d w i t h any o f t h e r i s k measures. The s i g n i f i c a n t c o r r e l a t i o n o f t h e Stock  P r i c e Wager s c o r e  and t h e S c a l e o f Wager s c o r e s u g g e s t s t h a t r e a l and  imaginary  wager r e s u l t s a r e r e l a t e d — i . e . , i n d i v i d u a l s who recommend t a k i n g g r e a t e r r i s k i n h y p o t h e t i c a l gambling s i t u a t i o n s w i l l a l s o gamble w i t h h i g h e r r i s k s when c o n f r o n t e d w i t h r e a l wagers. Though s i g n i f i c a n t , t h e c o r r e l a t i o n c o e f f i c i e n t i s o n l y  .29  ( s u g g e s t i n g t h a t t h e r e l a t i o n s h i p i s f a i r l y weak). The  Choice Dilemma Score, w h i c h may be r e g a r d e d  as "ad-  v i s o r y r i s k t a k i n g , " c o r r e l a t e s s i g n i f i c a n t l y with Scale of Wager and odds i n I n - B a s k e t .  The l a t t e r c o r r e l a t i o n may be  p a r t l y e x p l a i n e d by t h e c o n t e n t i o n t h a t s i m i l a r i t y i n "format" ( i . e . b o t h ask t h e s u b j e c t s t o a s s i g n minimum odds) w i l l  TABLE XXIV Spearman Rho's o f R i s k Measures (One t a i l e d t e s t , p< 0.05) Variables  I E SSS Stock Eqext Choice Compenst. S c a l e Rate P r o f i t  1.00 —  IE  —  1.00 —  sss Stock Eqext Choice Compenst.  1.00  —  —  —  —  —  —  .36  —  —  —  —  0.31  —  —  —  0.29  ~  0.30  O.36  —  —  1.00  —  .35  1.00  1.00  Scale Rate Profit  -0.41 —  ~  -.42  — —  . 31  —  —  .38  —  .32  .55  .61  —  1.00  .30  .48 — 1.00  Odd Memo S e m d i f f .  1.00  0.37  —  1.00 —  Odd Memo Semdiff. Legend 1 IE - I n t e r n a l E x t e r n a l C o n t r o l Scores SSS - S e n s a t i o n Seeking Score Choice - Choice Dilemma Scores Eqext - Squared E x t r e m i t y Scores Stock - Stock P r i c e Wager Scores Compenst. - Compensation U t i l i t y  0.28  1.00 1.00  S c a l e - S c a l e o f Wager Rate - Rate o f R e t u r n P r o f i t - Net P r o f i t U t i l i t y Odd - Minimum Odd, In-Basket Memo - Memo S c o r e s , In-Basket S e m d i f f . - Semantic D i f f e r e n t i a l  Scores  131 r e s u l t i n s i m i l a r placement of i n d i v i d u a l s .  As t o the c o r r e -  l a t i o n w i t h S c a l e of Wager, t h e r e seems t o he no o t h e r  explana-  t i o n except t h e g e n e r a l n o t i o n t h a t t h e y are measuring the same construct.  (This g e n e r a l n o t i o n i s i n f a c t a p p l i e d t o the ana-  l y s i s of the e n t i r e matrix.) S c a l e o f Wager seems t o have the l a r g e s t number o f c o r r e l a t i o n s w i t h o t h e r measures.  On t h e o t h e r end, t h e Semantic  D i f f e r e n t i a l s c o r e has the l e a s t number o f s i g n i f i c a n t tions. t h i s may  correla-  Because i t r e f l e c t s s u b j e c t s ' e v a l u a t i o n o f r i s k t a k e r s not be c o n s i d e r e d as a d i r e c t r t p r o p e n s i t y measure  and t h e c o r r e l a t i o n s may  be e x p l a i n e d w i t h t h i s  distinction.  I f Compensation U t i l i t y i s c o n s i d e r e d as " p e r s o n a l " monet a r y r i s k t a k i n g , i t should c o r r e l a t e h i g h l y also with P r i c e Wager.  Stock  But t h e m a t r i x shows i t c o r r e l a t e s o n l y w i t h  S c a l e o f Wager and odds i n  In-Basket.  The r e s u l t s r e v e a l e d by t h e m a t r i x suggest t h a t the underl y i n g r i s k t a k i n g p r o p e n s i t y i s not as u n i d i m e n s i o n a l i n i t i a l l y thought.  They a l s o suggest t h a t our i n i t i a l l y  f i n e d "business r i s k " dimension i s q u i t e broad. c o r r e l a t i o n s may  as  we de-  Thus, the  i n d i c a t e t h a t t h e s e measures are not measuring  t h e same t h i n g . A s t a t i s t i c a l method c a l l e d F a c t o r A n a l y s i s i s used by researchers to i s o l a t e e i t h e r c l u s t e r s of r e l a t i o n s h i p s , or u n d e r l y i n g dimensions.  The more i m p o r t a n t  phase o f t h i s  type  o f a n a l y s i s i s t o d e f i n e the f a c t o r s based on t h e r e s u l t s on t h e i n i t i a l assumption o f what t h e s e f a c t o r s a r e .  This  and  132 method o f a n a l y s i s i s employed when t h e s i m p l e  correlation  m a t r i x does n o t e x h i b i t t h e f a c t o r s o r c l u s t e r s o f r e l a t i o n ships  clearly.  Factor Analysis On t h e assumption t h a t t h e u n d e r l y i n g dimensions may be i n t e r r e l a t e d , t h e Pearson c o r r e l a t i o n m a t r i x o f t h e r i s k meas u r e s i s used as i n p u t t o o b l i q u e f a c t o r a n a l y s i s . The number o f f a c t o r s i s s e t a t f o u r because o f t h e i n i t i a l b e l i e f t h a t t h e p o s s i b l e f a c t o r s i n h e r e n t i n t h e d a t a are» a d v i s o r y r i s k t a k i n g — i . e . , Choice Dilemma; (2)  business  r i s k t a k i n g — i . e . , Rate o f Return and Net P r o f i t U t i l i t y I n - B a s k e t , e t c . ; (3) extremity score  (1)  role items,  p e r s o n a l r i s k t a k i n g — e . g . , compensation,  (which can be i n t e r p r e t e d as " r i s k t a k i n g i n  the knowledge d i m e n s i o n " ) ;  (4)  gambling p e r s o n a l — e . g .  Stock  P r i c e Wager and S c a l e o f Wager. The o b l i q u e f a c t o r a n a l y s i s shows t h a t t h e f a c t o r s a r e n o t significantly  c o r r e l a t e d ( r a n g i n g from .067  t o -0.015).  Also,  i t i n d i c a t e s that there are f i v e f a c t o r s (using eigen value >1.0  as c u t - o f f p o i n t ) . Table XXV g i v e s us t h e r o t a t e d f a c t o r l o a d i n g m a t r i x and  the f a c t o r s t r u c t u r e .  F a c t o r 1 i s l o a d e d on by S c a l e o f Wager,  Net P r o f i t U t i l i t y , odds i n In-Basket odds s c o r e  and t h e w e i g h t e d g r a d e -  (from I n - B a s k e t ) — u s i n g a c u t - o f f c r i t e r i o n o f  l o a d i n g g r e a t e r t h a n .50.  Only t h e two e x t r e m i t y s c o r e s l o a d  h e a v i l y on F a c t o r 2 w h i l e t h e Semantic D i f f e r e n t i a l ,  Stock  P r i c e Wager and Compensation U t i l i t y s c o r e s l o a d h e a v i l y on  TABLE XXV 0B3LIQUE FACTOR MATRICES USING PEARSON'S AS INPUT  133  1  R O T A T E D F A C T O R - L O A D I N G S MATRIX * I N D I C A T E S A V A L U E GREATER THAN  OR  ~ TO  EQUAL  0.60000  FACTOR 1 VARIABLE 1 SPWAGERS 2 SQEXTREM 3 "E XT SCORE 4 CONFIDEN 5 CHOICEDL_ 6 COMPENST 7 SCWAGERS 8 RATERETM 9 PROF I TNT 10 WIRES COR 11 O D I N B A S K 12 GRADEODD 13 S E M D I F S C SUM  OF  0.2787 0.0034 0.0201 0.4 533 0_.Q9 5 5_ 0.1474 0.5 7 4 0 0.15 92 0.7 5 7 4 0.0 109 0.8 2 49 -0.9590 -0.0 539  * -  * -  SQUARED  0.1936 0.9031 0.8894" 0.1482 0_j_1091 0.2634 C.1194 0.3982 0.3359 0.C532 0.262 3 0. 1185  0.6731 •0. 1193 -0.1550 0. 3 4 3 6 •0. 1062 -0.7507 -0.1057 -0.0225 0. 1 0 3 0 -0.C485 -0.0482 0.157 5 0.8101  0.2064  FACTOR-LOADINGS DIVIDED 0.3233 0.2495  -0.2616 -0.1144 -0.1134 -0.3622 * -0.7711 *  -0.1057 -0.5269 -0.4753  0.1893  0.4421 -C.2302 -0.C465 0.1956  RY SUM O F 0.2146  COMMUNAL I T I E S  0.1882  f ATI* I X OF CQRR E L A T ION'S OF FACTORS WITH V A R I A B L E S . V A R I A B L E S ARE REORDERED A C C O R D I N G TO H I G H E S T C O R R E L A T I O N * I N D I C A T E S A MAGNITUDE G R E A T E R THAN OR EQUAL T O 0.50O. FACTOR 1  2  VARIABLE 4. C O N F I DEN 6.4233' 7 SC WAGERS* -0.6 459 9 PROF I TNT * -0.7 20 7 11 O D I N 3 A S K * -0.862 9 12 GRADEODD • * - 0 . 9 6 2 8  3 E X T SCORE  ******  2 SQEXTREM  ""-0.0220 O.C 0 2 3  13 SE MDIF SC 1 SPWAGERS 6 CGMPENST  -0.0 064 -0.2889 -C.l79 3  ** * * * * * *  * -0.920 5 * - 0 . 9304 y -  -u  s ' ^  a,  0.32 3 5 -0.1391 -0.3642_  0.3 592 -0.1102 0.0218 -0 . 0 2 9 6 0. 144 5  - 6 . 2 0 59 -0.2C71  * 0.823 3 * 0. 6 540 * -0.7320  0.1679 -0.3570 - 0 . 1 I 46  * * * * * * ** J - J,  0.0679 -0.2 322 -0.0096  0.0953 0.346 3 - 0 . 2091  -0.3351 -0.6119 0.039C . -C.31GL • -0.1713  *  -0.2587 -0.2239  'f V  10 WI RES COR 8 RATERETN " 5" C H O I C E D L  4  3  - 0 . 15 54 ' - 0 . 1787 -Go 3363 0.243 0 0.1524  "»"• *f 'f  WITH A  :•  * ***** **  v > , , 1 , ^fj  'C-  -f  -0.C653 0.046 8 -0.0754  *  0.452C -0.4517 -C.7646  ****** Wer  to table XXVIfor meanings of the abbreviated variable names.  FACTOR.  134 F a c t o r 3«  4.  The Choice Dilemma items a r e p r i m a r i l y o f F a c t o r  The f a c t o r s t r u c t u r e i s shown by t h e second m a t r i x o f Table XXV w h i l e t h e f i r s t m a t r i x  ( u s u a l l y not d i s c u s s e d i n s t a t i s -  t i c a l a n a l y s i s ) i s the f a c t o r p a t t e r n .  F a c t o r 2 may be con-  s i d e r e d as t h e b u s i n e s s knowledge d i m e n s i o n because o f t h e l o a d i n g s by E x t r e m i t y s c o r e s and F a c t o r 4 may be c a l l e d adv i s o r y d i m e n s i o n due t o t h e Choice Dilemma; as t o F a c t o r 3» the d i m e n s i o n cannot be named r e a s o n a b l y .  I f we d i s r e g a r d  Semantic D i f f e r e n t i a l ' s l o a d i n g , we can c a l l t h i s t h e  'person-  a l ' r i s k t a k i n g d i m e n s i o n due t o Stock P r i c e Wager and Compensation U t i l i t y scores. n e i t h e r expected  O v e r a l l , the f a c t o r s extracted are  nor i d e n t i f i a b l e .  Because t h e f a c t o r s a r e r e a s o n a b l y u n r e l a t e d , an o r t h o g o n a l f a c t o r a n a l y s i s w i t h v a r i m a x r o t a t i o n i s done u s i n g t h e Pearson c o r r e l a t i o n m a t r i x o f r i s k s c o r e s as i n p u t .  The r e s u l t s  o f r o t a t e d f a c t o r m a t r i x r e v e a l e d i n Table XXVI shows more o r l e s s t h e same k i n d o f r e l a t i o n s h i p s .  The E x t r e m i t y Scores  may  be e x p l a i n e d m o s t l y by F a c t o r 1 ( c a l l e d t h e knowledge dimens i o n ) ; t h e odds i n In-Basket l o a d e d h e a v i l y on F a c t o r 2;  and t h e w e i g h t e d Grade Odds a r e Compensation U t i l i t y s c o r e s , on  F a c t o r 3? S c a l e o f Wager, on F a c t o r 4; F a c t o r 5«  and Choice  Dilemma, on  T h i s time f i v e f a c t o r s a r e e x t r a c t e d as t h e com-  p u t e r program o v e r r i d e s one's i n i t i a l s e t t i n g o f t h e number o f f a c t o r s by u s i n g t h e e i g e n v a l u e r u l e . becomes h a r d e r .  I d e n t i f y i n g the f a c t o r s  F a c t o r 1 i s s t i l l t h e knowledge  dimension;  135  TABLE XXVlbftTllOGONAL FACTORMATRIX AND TRANSFORMATION MATRIX Using Pearson's.  VARIMAX  ROTATED  FACTOR  MATRIX  ( Without spedifying the number of variable factors)  FACTOR  FACTOR  1  Stock Price Wagers 0 . 0 7 9 11 Extremity Scores'*" # 0 . 9 6 0 5 2 Plain Extremity # 0 . 9 33 4 4 Confidence "0.009 4 7 Choice Dilemma 0 . 1 75 3 9 Compensation U t i l . 0 . 2 2 3 5 2 Scale of Wagers 0. 134 0 5 Rate,of Return -0. 17705 Profit Net U t i l . 0.22637 In-Basket Memo - 0 . 0 6 9 66 - 0 . 1941 7 In-Basket Odd Grade-odd In-Bask. - 0 - 0 3 0 9 4 Semantic Differen. 0 . 2 1 8 9 1  2  -0  0 .09506 - 0 . 0 3 7 2 7 -0.0 3711  .27687  - 0 . 0 4 7 0 4 O.C8433 0 . 12693  * 1 . 2 4 1 15 0.20558  0 . 0 3695 0 . 3 9584  - 0 . 0 5 3 3 3 0. 1 5444  0.00314" *  0.66501  •*  1 . 0 964 1 0.26949  "~  71  FACTOR  5  0 . 0 2 9 3 3 0.12 329  0.02892 0 . 0 7 2 66  0.06641 0.07216  0.12130 0 . 2 2 0 02 -0.0 0419 * 0 . 9 4 4 6 7  #1.24179 0.02997 0.03205 0.05219 - 0 . 1 8 3 3 0 - 0 . 11361 0.11944  0.49454 * 0 . 4 5 5 3 1  — 0 .--0-4-6 2-6 0.29219  -  4  0.33130 0 . 3 76 97 -0.19125  0.C0316 0 .043  FACTOR 0.39357  0. 13986 - 0 . 0 3 5 4 9 •"' 0.08329  ' - 0 . 4 1080 '  .  3  0.09413  Squared-Extremity Score TRANSFORMATION  FACTOR  0.06963 0.10318  0 . 0 3 0 51  -  MATRIX  FACTOR  1  FACTOR  2  FACTOR  3  FACTOR  FACTOR  1  -0.  60500  -0.31377  FACTOR  2  - 0 . 6 1 8 30 - 0 . 2 3 0 76  3  - 0 . 43922 0. 24250  0.44350  FACTOR  0. 7 3325 -0.CO667  0 . 5 5 7 53  -0.19593  FACTOR FACTOR  4 5  -0.  61825  - 0 .  0.  17172  0.60543 - 0 . 16556  - 0 . 7 0 6 4 8  2 9430  o.-O.  0 46 5 4  0 . 6 16 5 1  -0.16415  4  FACTOR - 0 . 2 5 80 9 0.23562 - 0 . 7 6 9 3 3 0.47129 0.25277  5  136 F a c t o r 2 i s the b u s i n e s s - r o l e r i s k t a k i n g ; F a c t o r 3 i s t h e p e r s o n a l u t i l i t y dimension; F a c t o r 4 may t i c a l monetary r i s k t a k i n g and The b u s i n e s s  utility  be c a l l e d hypothe-  F a c t o r 5,  'advisory' r i s k taking.  items are not l o a d e d h e a v i l y on any  of  the f a c t o r s ; t h e same can be s a i d o f the Semantic D i f f e r e n t i a l score.  The  Stock P r i c e Wager s c o r e s have t h e h e a v i e s t  on F a c t o r 4 but t h e l o a d i n g i s not g r e a t . l o a d i n g s may measures.  The  loading  r e s u l t s o f the  be e x p l a i n e d by the low c o r r e l a t i o n s o f the  risk  Because the l o a d i n g s are g e n e r a l l y weak (or s m a l l i n  v a l u e ) , f a c t o r analyses  r e s u l t s s h o u l d not be r e l i e d on  solely.  Using the Spearman c o r r e l a t i o n m a t r i x r a t h e r t h a n the Pearson, an o b l i q u e f a c t o r a n a l y s i s i s u n d e r t a k e n .  The  factor  c o r r e l a t i o n m a t r i x o f Table X X V I I I r e v e a l s t h a t F a c t o r s 1 5 are s i g n i f i c a n t l y c o r r e l a t e d (at .05 c o r r e l a t i o n o f F a c t o r s 4 and  level, r >  and  .29).  The  5 i s a l s o s i g n i f i c a n t a t .05  F i v e f a c t o r s are e x t r a c t e d t h i s t i m e .  level.  Using a c u t - o f f  p o i n t a t l o a d i n g g r e a t e r than o r e q u a l t o . 5 0 , the S c a l e  of  Wager i s d i s c o v e r e d t o l o a d h e a v i l y on t h r e e f a c t o r s (1,  4  5). may  T h i s , t o g e t h e r w i t h the l o a d i n g s of the w e i g h t e d grade  odd,  e x p l a i n the r e s u l t a n t f a c t o r c o r r e l a t i o n mentioned above. By comparing Table XXV  Choice on any  w i t h Table XXVII, we  t h e two  find that  the  Dilemma s c o r e i n t h e l a t t e r t a b l e does not l o a d h e a v i l y of the f a c t o r s .  A l s o F a c t o r 3 seems t o be l o a d e d  v i l y by the Memo s c o r e i n Table XXVII. t a b l e s may  t r i c e s used. we  and  The  hea-  dissimilarity  of  be t r a c e d t o the d i f f e r e n t c o r r e l a t i o n ma-  However t h i s d i f f e r e n c e i s not overwhelming when  c o n s i d e r t h a t o n l y net p r o f i t and  Choice Dilemma s c o r e s  are  137 n o t as h e a v i l y l o a d e d  as i n T a b l e XXV.  Though t h e f a c t o r s e x t r a c t e d i n T a b l e XXVII a r e c o r r e l a t e d , an o r t h o g o n a l  f a c t o r a n a l y s i s (varimax r o t a t e d ) i s a l s o under-  t a k e n u s i n g t h e Spearman c o r r e l a t i o n m a t r i x as i n p u t .  A com-  p a r i s o n o f T a b l e XXVI and X X V I I I which shows t h e r e s u l t a n t f a c t o r l o a d i n g s i s done.  F a c t o r 1 o f Table X X V I I I i s s i m i l a r t o  F a c t o r 2 o f Table XXVI w h i l e F a c t o r 2 ( o f X X V I I I ) i s s i m i l a r t o F a c t o r 1 o f XXVI.  Factor 3 o f both i s s i m i l a r .  a l s o be s a i d o f F a c t o r 4.  T h i s can  Factor 5 i s e n t i r e l y d i f f e r e n t i n  X X V I I I because t h e c o n f i d e n c e  s c o r e and t h e memo s c o r e l o a d on  t h i s w h i l e i n XXVI, o n l y t h e Choice Dilemma does. These f a c t o r a n a l y t i c a l methods a r e u t i l i z e d a i d us i n i d e n t i f y i n g t h e f a c t o r s .  i n order t o  However, t h e r e s u l t s o f  t h e s e methods do n o t seem t o be o f much h e l p t o u s .  The r e l i -  a b i l i t y o f t h e f a c t o r s e x t r a c t e d by t h e s e methods a r e moreover open t o doubt because o f i t s i n s t a b i l i t y .  The s t a b i l i t y  check  i s done by f i r s t d i v i d i n g t h e d a t a ramdomly i n t o two s e t s . o b l i q u e f a c t o r a n a l y s i s i s done f o r each s e t .  Four c a n o n i c a l  c o r r e l a t i o n s between t h e two s e t s o f f a c t o r s c o r e s four f a c t o r s are requested) are derived. 0.74,  0.42 r e s p e c t i v e l y (16,  An  (because  These a r e 0.98,  O.83,  9, 4, 1 degrees o f freedom f o r t h e  r e s p e c t i v e c o r r e l a t i o n s , and p = - 0 . 0 , - 0 . 0 , 0.00053, 0.013 based on c h i - s q u a r e ) .  F a c t o r c o e f f i c i e n t s d e r i v e d under t h e  f o u r c a n o n i c a l c o r r e l a t i o n s assumption r e v e a l t h a t t h e s e r u n i n d i f f e r e n t d i r e c t i o n s (i.e., f a c t o r c o e f f i c i e n t s o f one s e t a r e p o s i t i v e w h i l e t h e f a c t o r c o e f f i c i e n t s i n t h e second s e t are n e g a t i v e ) .  T h i s means t h a t f a c t o r s e x t r a c t e d i n t h e f i r s t  138 TABLE XXVJI-  OBLIQUE FACTOR MATRICES  USING SHEARMAN'S AS  AFTER R OTATION WITH FACTOR ° A T T E R N  STOCK S SOFXT EXT sr. AVECO CHO ICE COMPUT SCALES RATERT PROF IT WI R E S C OOINBS 'GRAODO""" SEMOI C  FACTOR  K i l S C  F AC TOR 1 0. 0 1 5 7 6 0. 0 3 0 7 1 0.0 3 3 2 3 0. 225Q6 - 0 . 145 8 2 - 0 . 3 4 ? 24 - 0 . 1941 9 0. 19 2 ° 2 -0.0428 1 0. 13 5 9 7 -0. 6 6 3 4 -1. 06701 - 0 . 432 3 9 7  INPUT  R NORMAL I ZAT ION  '"FACTOR  T  ~  0,07936 0.9 22 92 0.93109 - 0 . 0 6 307 0.33361 "-'0.1415 7 0.22321 - 0 . 1. 764 3 - 0 . 06720 - 0. C 1 84 2 -0.1139 6 -0.20411 0.16386  FACTOR" 3 ' " ~F~A"CTOR'4 -0.01053 0.040 50 -0.01350 - 0 . 18561 - 0 . 1209 9 0.03955 0.52 3 84 0.009 88 0.22173 0. 082 01 0.325 2? C". 5 0 5 0 7 0.22660 0.47100 -0.448 8 5 0.739 33 0.0 643 2 -0.0 36 08 -0.50240 0 . 0 3 9 78 -0.0419 3 0.21867 -0.29318 -0.17 8 5 3 0.05030 • 0.01780 , -  FACTOR 5 0.36100 0.10500 -0.04495 -0.C07C3 0 . 1 6 5? 8 -0.13135 0. A 673 9 0.2 3 4 8 9 0.82483 -0.06115 0. 2 2 3 8 8 " 0. 5 2 6 1 6 -0.10656  STRUCTURE FACTOR 1 -07112 1 6 -0. 11766 -0.10846 0. 153 95 - 0 . 2976 4 -0.4 3510 * - 0 . 506 1 2 0. 0 J2 56 -0. 2 3 5 0. 2 32 3 3 *"-0. 7547 1 * - 1 . 10630 -07440? 2 '  "STOCK S SOEXT EXTSC AVECO CHOICE C0 PUT SCALES RATFRT PROF T T V I R ESC 0DIN3S GRAGOO SEMOIP M  7 7  •FACTOR 4 0.12716 -0.30742 0.08563 +0.9 5713 - 0 . 1 4 5 46 0.02063 *0.94526 0.48787 0.01933 -0.02362 0.28447 0.13415 6. 3 5895 0.410 9 r, * 0 . 593 05 - 0 . 1 308 3 '07303 92 " " * 0.6 3;> 7 5 "0." 2-3 02 6"" -0.44737 -0.35942 * 0. 7 5 0 33 0.0075 3 0.22566 0.05930 #-0.51762 -0 . C 5C ">'> -a.127"6 0.4 3 9 4 9 0.04641 - 0 o 0 1511 - 0 . 21404 0.20321 0.0 3 270 0.0 58 5? 07"2'2"95T 0. 1 4 6 1 4  •EACT OR  _ „ _ . _ _ _  2  FACTOR  3  FACTOR 5 0'.'3 7 86'4 0.16109 0.08698 -0.11138 0.25785 0.07742 * 0.67554 0.3 9 4 1 1 .#0. 8 1 4 7 7 -0.0619 8 0.47236 * 0.7 8 366 0.04462  FACTOR CORRELATIONS  FACTOR FACTOR FACTOR FACTOR FACTOR  1 2 3 4 5  FACTOR 1 FACTOR2 - 0 . 17271 1. 0 0 0 0 0 1 .00000 - 0 . 1 72 71 0,143 52 -0. 14723 -0.13559 - 0 . 212 6 6 - 0 . 2963 5 ' .<__ 0 . 1 2 7 0 1  " FACTOR"" 3 -0.14728 0. 1 4 3 5 2 1.00000 0.0 9 3 9 7 -0.0606 8  FACTOR 4 - 0 . 2 1 2 66 - 0 . ] 5S 0.09397 1.COO 00 _ 0.28629  - refer to tg.ble XXVIfor the meaning of abbreviated variable names  FACTOR' - 0 . 2 9 68 5 0.12701 -0.0606 8 0.28629 1.00000  139  TABLE XXVIII ORTHOGONAL FACTOR MATRIX USING SPEARMAN'S AS INPUT FACTOR STOC<S SQFXT  1  0 . OH- 7 7 7 0. 0 It 9 4 _ 0^02664  JXTS:_  -o.i  AVFCO' CHOICE COMPUT  0. 0. 0. - 0 . _ 0.  SCALES RATE RT _PP0F_1J_ WfRESC" CD I MOS GRAOD D  .'U j  23096 4 5 45 3 403 53 049 8 2 1 5 2 59_  ""-"iT."lT6 4 2 *  0. 7240 0  ""-OT04 7 4 3 0.32566 - 0 . 1 6 571 0.21942 -0 . 3C761 - O . f 07_39  • - 0 . cTioT  *  0 . 4 4 741 0.76090 0.C4O5 3 0". 0 7 0 4 2 / 0.21223 - 0 . 12 3 5 5  FACTOR  -0.72746 0. O 0 6 9 6 0. 1512 3 -0. 5 5 1 5 0 - 0 . 3791 1  -0 . 0 699 3 0 . 9 350 3 - 0 . 0 9553 0.23370 - 0 . 2 3 300  -0.23272 - 0 . 3 2 2 9 3 0.15023 0 . 7 2 05 0 - 0 . 54756  MATRIX  FACTOR  0.06692 - 0 . 2 2 2 9 9 -0^02 299 07"013 8" 3 " 0.05218 0 . 4 3 6 58  0 . 94104 0 . 9 52^9  FACTOR  TRANSFORMATION  1  0. 0 912 0 * *  FACTOR  0. 4 3110  2 3 4 5  FACTOR  -0.02244  SEMOf F  FACTOR  2  - 0 . 0 8250 -0.08014 0. 19302  At 1 . 0 3 6 9 0  FACTOR FACTOR. FACTOR F A C TOR  FACTOR  0 . 3 6 5 82 C.13036 0.03041  -0T05"801" 0 . 2 1 8 78 C O 0 3 10 C.5904? 0.33568 * C. 80466 "~-0. 06446" 0.36103 * 0.64759 -0.02115  3  FACTOR -0.01833 0. 01 CIO -0.04705 M c . 51 T59 0.24984 0.40790 l . 29334 - 0 . 3 6 8 0 8 0.01344 * - 0 . 4 9 551 - 0 . 0 0 0 5 2 -0.31192 0 . 0 8 78 2  FACTOR  FACTOR  - 0 . 643. 5 2 0 . 0 0 4 14 - 0 . 2 3 5 81 0.33621 C . 6^-791  -C.0137 7 0. 14605 0.94330 0.08189 0.28627  * REFER TO TABLE XXVIfor meaning of the abbreviated variable names.  140 s e t are not i d e n t i c a l t o the f a c t o r s i n the second s e t . the f a c t o r s are s a i d t o he  Thus,  unstable.  I t i s a d v i s a b l e not t o r e a d t o o much from t h e r e s u l t s o f t h e f a c t o r a n a l y s i s as t h e s e may  not be s t a b l e .  I t i s recom-  mended t h a t f u t u r e r e s e a r c h u t i l i z e s the a n a l y s e s here i n o r d e r t o r e s o l v e the m u l t i d i m e n s i o n a l the f a c t o r s f i n a l l y .  undertaken  i s s u e and name  T h i s i s done when t h e sample s i z e  (defi-  n i t e l y g r e a t e r t h a n t h e ones we have s e c u r e d ) i s s u f f i c i e n t l y large. R i s k T a k i n g as a F u n c t i o n  o f Other V a r i a b l e s  I f one were t o c o n s t r u c t a model o f r i s k t a k i n g one would l i k e t o l o o k a t how r e l a t e to r i s k t a k i n g . propensity  other v a r i a b l e s — e . g . ,  behavior, demographic—  This i s u s e f u l i n p r e d i c t i n g r i s k  taking  once we know what the e x a c t r e l a t i o n s h i p s a r e .  Al-  though s e e m i n g l y e l e m e n t a r y , t h e a n a l y s i s t o f o l l o w can be s i d e r e d as a f i r s t s t e p i n model b u i l d i n g .  Before d i s c u s s i n g  t h e model, we would l i k e t o p r e s e n t here t h e r e s u l t s o f demographic i n f o r m a t i o n s e c u r e d from t h e The  Personal  Record q u e s t i o n n a i r e  con-  the  subjects.  intends to secure  m a t i o n c o n c e r n i n g the s u b j e c t s ' demography—e.g., age,  infor-  amount  of a s s e t s , number of y e a r s a t work, dependents, academic backg r o u n d , amount o f l i a b i l i t y , e t c .  A r e v i e w o f some o f t h e s e  r e s p o n s e s w i l l a l s o shed l i g h t on the n a t u r e o f the  subjects  used. Only t h r e e o f the s u b j e c t s are f e m a l e , r e n d e r i n g  the i n -  v e s t i g a t i o n of s e x - r i s k t a k i n g r e l a t i o n s h i p h i g h l y u n l i k e l y .  141 Cultural differences i n r i s k taking propensity  cannot be  examined because 7 3 $ o f t h e s u b j e c t s a r e Canadian. Twenty-eight o f t h e s u b j e c t s a r e M.B.A.'s w h i l e f i v e a r e M.Sc.  w i t h one M.B.A.-Ph.D. combined and two m i s s i n g .  An i n t e r -  e s t i n g p o s s i b i l i t y , g i v e n a l a r g e sample s i z e , i s t o l o o k a t r i s k taking propensity  d i f f e r e n c e s and t h e degrees sought by  subjects, or t h e i r option This questionnaire  areas.  a l s o asks q u e s t i o n s  on hobbies and  s p o r t s from w h i c h we t r y t o deduce a person's r i s k t a k i n g  atti-  tudes ( i . e . , a r e t h e s p o r t s t h e s u b j e c t s engaged i n r i s k y o r n o t j do t h e y gamble i n r e a l l i f e , e t c . ) .  S k i i n g , c o n s i d e r e d as  a r i s k y s p o r t , i s engaged i n by 42$ o f t h e s u b j e c t s .  But a l l  o f t h e s u b j e c t s have such m u l t i p l i c i t y o f h o b b i e s ( r a n g i n g  from  v i o l i n t o k n i t t i n g ) t h a t t h e r i s k t a k i n g a t t i t u d e s based on h o b b i e s c o u l d n o t be deduced.  As t o g a m b l i n g , 4 0 % do n o t en-  gage i n any form o f g a m b l i n g — n o t even i n i n v e s t m e n t s .  Because  o f t h i s l a c k o f v a r i a b i l i t y o r , t o be s p e c i f i c , t h e f a i l u r e t o ascertain the subjects' r t propensity leisure,  from t h e i r h o b b i e s and  these v a r i a b l e s are deleted.  Only a few i m p o r t a n t v a r i a b l e s a r e r e t a i n e d f o r purposes.  practical  The degrees o f freedom a r e n o t l i k e l y t o be b i g be-  cause o f o u r sample s i z e and because o f t h e p a r t i a l c o r r e l a t i o n s t h a t w i l l " be u n d e r t a k e n .  The f o l l o w i n g v a r i a b l e s a r e u s e d i  average age o f t h e dependents, w o r k i n g y e a r s , s a l a r y , f a c e of insurance,  amount o f a s s e t s and amount o f l i a b i l i t i e s .  value Age  i s d e l e t e d because t h e p a r t i a l c o r r e l a t i o n s o f t h i s v a r i a b l e w i t h r i s k measures a r e n o t s i g n i f i c a n t .  142 There i s a l s o t h e q u e s t i o n o f what r i s k measures s h o u l d be r e t a i n e d .  F o r some q u e s t i o n n a i r e s , two o r more s c o r e s a r e  e x t r a c t e d and they a r e c l o s e s u b s t i t u t e s o f one a n o t h e r .  For  example, t h e p l a i n e x t r e m i t y s c o r e i s d e l e t e d because i t can be s u b s t i t u t e d by t h e squared e x t r e m i t y s c o r e .  Also, i f a  measure showed poor r e l a t i o n s h i p w i t h t h e r e s t o f t h e s c o r e s , i t i s deleted f o r t h i s analysis. Differential  The c a n d i d a t e s  a r e Semantic  ( d i s c u s s e d i n t h e C o r r e l a t i o n M a t r i x s e c t i o n and  i n t h e F a c t o r A n a l y s i s s e c t i o n ) and Net P r o f i t  Utility.  Table XXIX r e v e a l s t o us a l l t h e s i g n i f i c a n t p a r t i a l c o r r e l a t i o n s o f t h e r i s k measures w i t h t h e s e l e c t e d demographic variables.  The r e s u l t s o f t h e m a t r i x i m p l y t h a t most o f t h e  r i s k measures a r e n o t d i r e c t l y r e l a t e d t o t h e s e v a r i a b l e s . Compensation and s c a l e o f wager do n o t have any r e l a t i o n s h i p a t a l l w i t h t h e s e demographic v a r i a b l e s .  These r e s u l t s may be  i n t e r p r e t e d t o i n d i c a t e t h a t more work s h o u l d be u n d e r t a k e n for  t h e r i s k measures i n terms o f r e v i s i o n s and t r i m m i n g .  And  i f t h e P e r s o n a l Record r e s p o n s e s were u n r e l i a b l e , t h i s s u g g e s t s t h a t t h e d e s i g n c a r r i e d out f a i l e d t o e l i c i t t r u e responses on personal records—e.g.,  most o f t h e s u b j e c t s f e l t t h a t t h e i r  anonymity was b e i n g t h r e a t e n e d by g i v i n g responses on t h e i r personal  lives.  Stock  P r i c e Wager s c o r e  (Stock) i s n e g a t i v e l y r e l a t e d t o  number o f y e a r s a t work (Wyear).  This suggests t h a t there i s  t h e tendency f o r p e o p l e w i t h more y e a r s a t work t o t a k e more r i s k when o f f e r e d s t o c k p r i c e wagers. the more 'experienced* he i s .  I t can be i m p l i e d t h a t  a subject i s , the greater r i s k - t a k e r  143 S a l a r y and number o f y e a r s a t work a r e h i g h l y r e l a t e d t o e x t r e m i t y i n judgment.  But t h e r e l a t i o n s h i p s a r e n e g a t i v e .  The s u b j e c t s w i t h h i g h e r p r e v i o u s s a l a r y and number o f y e a r s at work become l e s s extreme i n t h e i r judgment. to  It i s possible  guess t h a t t h e more e x p e r i e n c e d one i s t h e l e s s one dares t o  t a k e r i s k i n t h e knowledge  dimension.  The Choice Dilemma s c o r e , w h i c h r e f l e c t s a d v i s o r y r i s k t a k i n g , i s n e g a t i v e l y r e l a t e d t o number o f y e a r s a t work, amount o f p r e v i o u s s a l a r y and amount o f l i a b i l i t i e s , i s p o s i t i v e l y r e l a t e d t o face value of insurance.  but i t  This i m p l i e s  t h a t h i g h e r s a l a r i e d , 'more y e a r s a t work' i n d i v i d u a l s recommend o t h e r p e o p l e t o t a k e g r e a t e r r i s k s .  But i f t h e i r  insur-  ance f a c e v a l u e i s h i g h , they a d v i s e o t h e r p e o p l e t o t a k e l e s s risks. results.  One must however e x e r c i s e c a u t i o n i n i n t e r p r e t i n g  these  Choice Dilemma, by f a r , has t h e most r e l a t i o n s h i p s  w i t h t h e s e demographic v a r i a b l e s . The r e l a t i o n s h i p o f t h e memo s c o r e and t h e age (average) o f t h e dependents i s s t r a n g e i n t h a t i t i m p l i e s t h a t a p e r s o n w i t h heavy r e s p o n s i b i l i t y  (support o f t h e dependents) recommends  taking greater r i s k i n business ventures. thus h i g h l y d o u b t f u l .  This r e l a t i o n s h i p i s  The p o s i t i v e r e l a t i o n s h i p o f t h e number  o f y e a r s o f work and s a l a r y w i t h t h e memo s c o r e suggests t h a t t h e more e x p e r i e n c e d s u b j e c t s a r e more c o n s e r v a t i v e . The In-Basket  Odd s c o r e i s p o s i t i v e l y r e l a t e d t o amount  of l i a b i l i t i e s — i . e . ,  i n d i v i d u a l s who have l a r g e amounts o f  l i a b i l i t y t e n d t o be more r i s k  averse.  144 I n t e r n a l - E x t e r n a l c o n t r o l , based on t h e t a b l e , can be viewed as a f u n c t i o n o f s a l a r y and average age o f dependent. F o l l o w i n g t h i s l i n e o f c a u s a t i o n , we can say t h a t as an i n d i v i d u a l g e t s more and more s a l a r y , r e f l e c t i n g more p r o m o t i o n o r reward f o r a b i l i t i e s , he becomes more i n t e r n a l l y c o n t r o l l e d . The  r e l a t i o n s h i p o f I E c o n t r o l and age o f dependent i s  d o u b t f u l because i t c o u l d i m p l y t h a t t h e age o f t h e dependent determines a person's IE c o n t r o l .  T h i s means t h e i n d i v i d u a l  becomes more i n t e r n a l l y c o n t r o l l e d when t h e average age o f h i s dependents i n c r e a s e s . Sensation-seeking  i s r e l a t e d s i g n i f i c a n t l y only t o the  amount o f p r e v i o u s s a l a r y .  This implies that subjects with  h i g h e r p r e v i o u s s a l a r i e s t e n d t o seek more s t i m u l a t i o n from travelling, social activities, etc. A s s e t , e x p r e s s e d i n terms o f g r o s s v a l u e , does n o t have any r e l a t i o n s h i p w i t h any o f t h e v a r i a b l e s .  Taken a t i t s f a c e  v a l u e , t h i s would mean t h e r e j e c t i o n o f t h e v a r i o u s hypotheses concerning  s i z e o f a s s e t and r i s k t a k i n g .  The p o o r r e s u l t s o f t h e t a b l e can be t r a c e d t o e i t h e r o f three sourcest  (1) e i t h e r t h e p e r s o n a l r e c o r d s d i d n o t e l i c i t  t r u e r e s p o n s e s i n t h a t s u b j e c t s d i s g u i s e d t h e i r answers t o p r o t e c t anonymity, (2) t h e m a j o r i t y o f r i s k measures a r e f a u l t y so that the hypothesized  r e l a t i o n s h i p s between measures and demo-  graphic v a r i a b l e s d i d not occur;  o r (3) b o t h t h e measures and  the personal record q u e s t i o n n a i r e are f a u l t y .  Source (1) seems  t o be predominant i n t h a t t h e v e r b a l feedbacks from t h e s u b j e c t s a f t e r t h e y responded i n d i c a t e d t h a t t h e y had t o p u t down u n r e a l  TABLE XXIX P a r t i a l Correlations of Risk Measures w i t h S e l e c t e d V a r i a b l e s Age Dependent  Working Years  Stock  —  -0.44  E x t r e m i t y Sc.  —  -0.98  -.98  -0.69  -.55  .689  Choice Dilemma  Salary —  Insurance Face Value —  Assets  Liabilities —  -0.40  -0.43  Compensation  —  —  —  —  —  S c a l e Wager  —  —  —  —  —  Rate  —  —  —  —  0.51  —  —  —  —  0.43  —  —  Return  Memo Score  -0.597  In Basket Odd Int.-Ext. Control SSS  .  1  0.497  —  —  .40  —  . .  Only those s i g n i f i c a n t  —  •.;T— •  .39  —  ( p < 0 . 0 5 ) p r e s e n t e d , DF = 16.  Legend t Stock - Stock P r i c e Wager E x t r e m i t y - Squared E x t r e m i t y Score Choice - Choice Dilemma Odd SSS - S e n s a t i o n Seeking  146 amounts sometimes because t h e q u e s t i o n n a i r e was t o o p e r s o n a l . As t o s o u r c e  ( 2 ) , some o f t h e measures must be r e v i s e d .  has been suggested  This  i n the previous p a r t s .  Discussion The c o r r e l a t i o n m a t r i x o f t h e v a r i o u s r i s k measures i m p l i e s that the u n d e r l y i n g construct i s not unidimensional.  Although  one s h o u l d n o t r e l y t o o h e a v i l y on t h e f a c t o r a n a l y s e s  carried  o u t , e x t r e m i t y - c o n f i d e n c e i n judgment i s d e f i n i t e l y o f a d i f f e r ent d i m e n s i o n .  T h i s e n t i r e measure, when viewed i n t h e l i g h t  o f o u r p r e v i o u s l y c i t e d c r i t e r i a , may be removed.  The Seman-  t i c D i f f e r e n t i a l s c o r e i s a n o t h e r r i s k s c o r e t h a t s h o u l d be e l i m i n a t e d because o f i t s weak a s s o c i a t i o n w i t h t h e o t h e r s c o r e s and because i t i s n o t a d i r e c t r t p r o p e n s i t y measure. The U t i l i t y measures can be d i c h o t o m i z e d i n t o two k i n d s i a p e r s o n a l and a b u s i n e s s u t i l i t y measure.  Net P r o f i t  Utility  appears t o be weakly l o a d e d on a l l t h e f a c t o r s . The r e s u l t s o f t h e f a c t o r a n a l y s e s r e v e a l t h a t t h e f a c t o r s a r e n e i t h e r expected n o r i d e n t i f i a b l e . The  Memo s c o r e , as r e v e a l e d by t h e o v e r a l l a n a l y s i s , i s  i m p l i e d t o be q u e s t i o n a b l e i n v a l i d i t y .  T h i s may be c o r r e c t e d  by a b e t t e r j u d g i n g p r o c e d u r e t h a n t h e one employed h e r e . An attempt a t m o d e l - b u i l d i n g r e v e a l s t h a t t h e demographic v a r i a b l e s l i k e age o f dependents, i n s u r a n c e , l i a b i l i t i e s , e t c . , have v e r y l i t t l e r e l a t i o n s h i p w i t h o u r r i s k measures.  Asset,  c o n s i d e r e d by many t o be h i g h l y r e l a t e d t o r i s k t a k i n g , has no s i g n i f i c a n t r e l a t i o n s h i p w i t h any o f t h e r i s k measures.  Com-  p e n s a t i o n and S c a l e o f Water u t i l i t y s c o r e s cannot be c o n s i d e r e d  14? as f u n c t i o n s o f t h e demographic v a r i a b l e s we l o o k a t . The e m p i r i c a l s t u d y u n d e r t a k e n s h o u l d be c o n s i d e r e d as a p r e - p i l o t i n t h a t t h e o b j e c t i v e i s not t o u n d e r t a k e a major e m p i r i c a l r e s e a r c h v e n t u r e but t o g e t a f e e l o f how t h e quest i o n n a i r e s a r e b e i n g responded t o .  I t i s s u g g e s t e d t h a t one  c o u l d use t h i s group as a p i v o t f o r s t u d y i n g o t h e r g r o u p s — e.g., comparison o f t h i s group w i t h o t h e r p r o f e s s i o n a l groups l i k e a c t u a l businessmen, e c o n o m i s t s , e t c .  148  CHAPTER 8 CONCLUSIONS  Men do n o t l i v e byexpected v a l u e a l o n e . A l f r e d Kwong, 1973 The purpose o f t h i s s t u d y has been t o develop a s e r i e s o f r i s k t a k i n g measures w h i c h a r e r e l e v a n t t o b u s i n e s s . T h i r t y - f i v e g r a d u a t e s t u d e n t s were a d m i n i s t e r e d a package o f r i s k t a k i n g measures i n b u s i n e s s , p e r s o n a l r e c o r d and p e r s o n a l i t y questionnaires.  S e v e r a l r e s e a r c h q u e s t i o n s were examined.  The r e s u l t s o f t h e i n t e r c o r r e l a t i o n s among t h e v a r i o u s r i s k measures suggest t h a t t h e u n d e r l y i n g c h a r a c t e r i s t i c i s not u n i d i m e n s i o n a l .  S e v e r a l f a c t o r a n a l y t i c a l methods were  t r i e d b u t t h e r e s u l t a n t f a c t o r s were n e i t h e r expected n o r identifiable. The r i s k measures were developed  by a d o p t i n g r e v i s e d v e r -  s i o n s o f p a s t measures and c o n s t r u c t i n g measures r e l e v a n t f o r our p u r p o s e s . Chapters 2 and 3 d e a l w i t h t h e background, economical and p s y c h o l o g i c a l , o f r i s k measures and t h e r e s e a r c h conducted i n t h e p a s t c o n c e r n i n g t h e s e measures. Chapter 4 d e s c r i b e s t h e package o f measures and d i s c u s s e s t h e importance o f s t u d y i n g r i s k t a k i n g p r o p e n s i t y , e s p e c i a l l y i n r e l a t i o n to d e c i s i o n theory.  149 Chapter 5 o u t l i n e s t h e method employed i n t h e e m p i r i c a l s t u d y , e m p h a s i z i n g t h e way  t h e package has been a d m i n i s t e r e d ;  and t h e i n s t r u c t i o n s t o the s u b j e c t s have been p r e s e n t e d i n toto. Chapter 6 examines t h e measures and t h e responses i n t h e l i g h t o f p a s t hypotheses  concerning r i s k - t a k i n g .  Item a n a l y -  s i s , a l t h o u g h f a i r l y g e n e r a l , has been done. Chapter 7 p r e s e n t s an o v e r a l l a n a l y s i s o f t h e measures by examining t h e r e s u l t i n g c o r r e l a t i o n m a t r i x o f t h e r i s k meas u r e s , t h e f a c t o r a n a l y t i c a l r e s u l t s o f f o u r d i f f e r e n t methods and the r e l a t i o n s h i p o f r i s k t a k i n g w i t h demographic v a r i a b l e s . R i s k t a k i n g p r o p e n s i t y , due t o t h e s t a t e o f t h e a r t , i s an •unknown p r i m i t i v e ' a c c o r d i n g t o S l o v i c . at  However, attempts  t h e f i n a l e m p i r i c a l d e f i n i t i o n o f t h e c o n s t r u c t have not  been numerous.  The m u l t i d i m e n s i o n a l i t y i s s u e , r a i s e d f o r q u i t e  some t i m e , i s s t i l l e x t r e m e l y d i f f i c u l t t o r e s o l v e .  The  right  d i r e c t i o n i s t a k e n o n l y when more c o n s t r u c t v a l i d a t i o n o f p a s t measures and o f newer measures i s u n d e r t a k e n . t h e a r e a i s b e g i n n i n g t o move i n t h e r i g h t  The i n t e r e s t i n  direction.  The s t u d y o f r i s k t a k i n g p r o p e n s i t y i s not c o n f i n e d t o one d i s c i p l i n e .  Each d i s c i p l i n a r y approach  e v e r , has i t s advantages and d i s a d v a n t a g e s .  t o t h e s t u d y , howU t i l i t y t h e o r y has  p r o g r e s s e d t o such a s t a g e t h a t r i s k a v e r s i o n i s examined f o r normative reasons.  C u r r e n t l y , economists  a r e more  concerned  w i t h t h e forms o f u t i l i t y c u r v e s , t h e e q u a t i o n s and t h e i n d i c e s , t h a n w i t h the problem  o f v a l i d a t i n g the measures.  However,  t h e r e i s a c o n t e n t i o n t h a t by examining t h e forms o f t h e  150  u t i l i t y c u r v e and d e r i v i n g u t i l i t y f u n c t i o n s t h e economists a r e v a l i d a t i n g t h e i r measures.  The p s y c h o l o g i s t s , on t h e  o t h e r hand, have g e n e r a l l y been more p r e o c c u p i e d w i t h u s i n g p a s t measures and examining t h e r e l a t i o n s h i p o f r i s k t a k i n g and p e r s o n a l i t y v a r i a b l e s t h a n i n more c r e a t i v e endeavours l i k e newer c o n s t r u c t i o n and ' u p d a t i n g v a l i d a t i o n . ' F o r t h e layman l i k e m y s e l f , t h e c e n t r a l q u e s t i o n i s how t o make use o f t h e f a c t s c o n c e r n i n g r i s k t a k i n g p r o p e n s i t y . And t h i s i s i m p o r t a n t i n t h e f i e l d o f d e c i s i o n - m a k i n g . The p r e s e n t s t u d y u n d e r t a k e n has i t s l i m i t a t i o n s . t h e sample s i z e and two, t h e n a t u r e o f t h e sample.  One i s  Also, the  s u g g e s t i o n s c o n t a i n e d i n Chapters 6 and 7 would mean more d e s i g n work (by d e s i g n , I mean t h e d e s i g n o f t h e measures t h e m s e l v e s ) . The t h e s i s , however, has been a b l e t o i n d i c a t e a r e a s o f weakness i n t h e measures t h e m s e l v e s .  The d e f i n i t i o n o f b u s i -  ness r e l a t e d r i s k t a k i n g has a l s o been examined and found t o be a b r o a d e r c o n s t r u c t t h a n we o r i g i n a l l y t h o u g h t .  Our major  accomplishment i s i n s u g g e s t i n g what a f i n a l package o f b u s i ness r e l a t e d r i s k measures s h o u l d c o n t a i n . Recommendations f o r Future  Research  Data from d i f f e r e n t segments o f t h e p r o f e s s i o n (e.g., g r a d u a t e s t u d e n t s i n o t h e r a r e a s ) might y i e l d d i f f e r e n t e.g.,  d i f f e r e n t f a c t o r s might emerge, d i f f e r e n t  might r e s u l t , e t c .  results—  correlations  A l s o , t h e purpose o f t h e s t u d y i s t o con-  s t r u c t ' b u s i n e s s - r e l a t e d r i s k measures' and what o t h e r group can a i d us i n v a l i d a t i n g t h e s e measures t h a n t h e businessman. Based on a s t a t i s t i c a l a n a l y s i s o f d a t a from o t h e r  samples,  one c o u l d a s c e r t a i n once and f o r a l l which measures s h o u l d be  151  r e t a i n e d , r e v i s e d o r c o m p l e t e l y removed. The p s y c h o l o g y o f economic development has been an enigma e v e r s i n c e someone thought up t h e t o p i c .  We hear comments  about r i s k t a k i n g and t h e l i k e , but t h e y a r e not  confirmed.  Thus, a f u r t h e r e x t e n s i o n would be t h e development o f a comp r e h e n s i v e b u s i n e s s r i s k t a k i n g measure on an basis.  international  A f u r t h e r dynamism would be a s t u d y o f r i s k t a k i n g  p r o p e n s i t y i n t h e i n t e r n a t i o n a l s e t t i n g u s i n g t i m e as a v a r i a b l e , i . e . , t r a c i n g t h e n a t u r e o f changes i n r i s k t a k i n g p r o pensity. The s o - c a l l e d t h e o r y o f independence i m p l i e s t h a t s o c i e t y would b e n e f i t e c o n o m i c a l l y i f i t s components took g r e a t e r r i s k s i n business.  V a r i o u s government i n c e n t i v e s have been i m p l e -  mented t o encourage b u s i n e s s r i s k t a k i n g s .  However, t h e  empir-  i c a l f i n d i n g s concerning the r i s k t a k i n g p r o p e n s i t y of the b u s i n e s s community a r e -not i n e x i s t e n c e .  Assumptions o f t h e  g e n e r a l r i s k a v e r s i o n o f t h e p u b l i c a r e u s e f u l but knowing t h e e x a c t degree o f r i s k a v e r s i o n would be a b e t t e r g u i d e t o g o v e r n ment economic i n c e n t i v e p l a n n i n g . A l s o , what determines  one's b u s i n e s s r i s k t a k i n g may  be  answered a f t e r a package o f b u s i n e s s r t measures has been f i n a l l y v a l i d a t e d and developed.  Perhaps t h e r e s u l t o f an i n t e n -  s i v e s t u d y s u g g e s t s a newer form o f o r i e n t a t i o n — s p e c i f i c a l l y , newer methods i n t e a c h i n g b u s i n e s s s t u d e n t s . For t h e b u s i n e s s o r g a n i z a t i o n , p o s s e s s i o n o f a s a t i s f a c t o r y r i s k t a k i n g measure would h e l p i n s e t t i n g up a c o r p o r a t e r i s k p r o f i l e and i n human r e s o u r c e a l l o c a t i o n .  T h i s i s one  of  152 t h e major i m p l i c a t i o n s o f t h e f i n a l development o f a sound b u s i n e s s r i s k t a k i n g measure. Bargaining to research  and r i s k t a k i n g i s a n o t h e r i n t e r e s t i n g t o p i c  i n t o i n that r i s k sharing or the d i v i s i o n of s p o i l s  may become more s y s t e m a t i c study.  and d e t e r m i n i s t i c as a r e s u l t o f t h e  A l s o , t h e v a r i o u s c o a l i t i o n models may be examined i n  a r i s k - t a k i n g - p r o p e n s i t y c o n t e x t — i . e . , whether r i s k t a k i n g propensity  i n f l u e n c e s the type o f c o a l i t i o n that r e s u l t s o r  not. 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"Development S c a l e " J . C o n s u l t i n g Psychology  162  APPENDIX A LIST OF RAW DATA  APPENDIX A - l CHOICE DILEMMA  IE CONTROL - SSS  1 row per s u b j e c t , s t a r t i n g with s u b j e c t ' s I.D., IE C o n t r o l Score-, SSS Score, 10 Choice Dilemma Ranks and 10 minimum odds f o r 10 items. APPENDIX A-2 EXTREMITY CONFIDENCE IN JUDGMENT 1 row p e r s u b j e c t , s t a r t i n g w i t h s u b j e c t ' s I.D., 15 e x t r e m i t y s c o r e s , 15 confidence scores f o r 15 items. APPENDIX A-3 IN BASKET RESPONSES 2 rows p e r s u b j e c t , F i l e Numbered. 1 s t row: 7 Memo S t r a t e g y Scores, Memo S c o r e w / 5 & 6 i n c l u d e d Memo Score 5 & 6 t r e a t e d as 2,5 and Memo Score 5 & 6 excluded; 2nd row: 7 minimum odds, minimum odd average, 7 Grade assignments, average Grade a s s i g n e d , Weighted Minimum odd score w i t h Grade as weight, 4 Semantic D i f f e r e n t i a l Scores, a c o n s o l i d a t e d SD Score. APPENDIX A-3 IN BASKET (CONTINUED) APPENDIX A-4 UTILITY RESPONSES 2 rows p e r s u b j e c t 1 s t row: S u b j e c t ' s I.D., 4 compensation response, No. o f NO Answers to S c a l e o f Wager, 5 S c a l e o f Wager responses. 2nd row: 5 Rate o f Return responses, 6 Net P r o f i t APPENDIX A-4 UTILITY RESPONSES  (CONTINUED)  APPENDIX A-5 PERSONAL RECORDS 2 rows p e r s u b j e c t  1 s t row: SUBJ'S. I.D. SEX: 1 f o r Male, 2 f o r Female, 99 m i s s i n g  responses.  163  AGE:  95 m i s s i n g  STATUS (MARITAL):  1-married, 4-divorced,  2 - s i n g l e , 3-separated, 99,0-missing,  NUMBER OF DEPENDENTS: 99 f o r m i s s i n g . AGE OF DEPENDENTS: Average, 999 f o r m i s s i n g . CITIZENSHIP: 1 f o r Canada: 2 f o r H.K., 3 f o r Singapore, 4 - B r a z i l , 5 - U.S., 6 - I n d i a , 7 - Others, 0,99 - m i s s i n g . PRESENT YEAR: 1-MBA I; 2-MBA I I ; 3-MsCI; 4-Msc I I , 5~Phd; 6 - 0 t h e r s , 7-MsC no year; 8-MBA no year; 95-missing, OPTION: - 1-Acctg; 2-Mktg; 3 - T r a n s p o r t a t i o n , 4-Urb. Land Economics; 5-Finance, 6 - I n t . Business; 7-Management Sc.; 8-0. B e h a v i o r , 9 - 0 t h e r s , 99 m i s s i n g . AVERAGE GRADE LAST YEAR - number r e p r e s e n t the ordered item checked. Please see q u e s t i o n n a i r e . PREVIOUS DEGREE - two d i g i t number used. F i r s t d i g i t r e p r e s e n t degree, 2nd d i g i t r e p r e s e n t o p t i o n , 1 s t d i g i t : 1-B Comm; 2-Eng'g., 3-Education, 4-Law, 5-B.Science, 6-Computer Sc.; 7 - 0 t h e r s ; 8-BA; 9-Masters; 2nd d i g i t : Eng'.g-l: C i v i l ; 2-Mech; 3 - E l e c t r i c a l ; 4-Chem., 5 - A g r i c u l t u r a l , 6 - 0 t h e r s ; Others- 0 ( f o r other degrees). 9^-missing. NUMBER OF DEGREES COUNTRY OBTAINED - same code as c i t i z e n s h i p . Working Years - n o , of years a t work. S a l a r y : l a t e s t s a l a r y i n thousands. P o s i t i o n ( l a t e s t ) : 1-higher l e v e l management; 2-middle management; 3-employee; 9 5 - ^ i s s i n g ,  2nd row: NUMBER OF SOURCES - count the number of sources of e d u c a t i o n a l f i n a n c i n g . See Q u e s t i o n n a i r e . 99-missing. TOTAL AMOUNT OF EDUCATIONAL FINANCING SOURCE WITH GREATEST FINANCING COMING FROM: to number i n the item,  Number r e f e r r e d  AMOUNT OF LARGEST FINANCING - i n thousands. FACE VALUE OF INSURANCE - i n thousands TYPEINSURANCE - type of insurance 1-with savings f e a t u r e 2-without s a v i n g f e a t u r e .  164  AMOUNT OF ASSET - T o t a l i n t e n thousands AMOUNT OF LIABILITIES AVERAGE INTEREST RATE APPENDIX A - 6 STOCK PRICE WAGER RESPONSES 1 row p e r s u b j e c t , w i t h s u b j e c t s I.D., 5 ranks p e r s e t , f i v e sets in. a l l and 5 o v e r a l l s e t r a n k i n g s .  L I S T I N G OF CHOICE DILEMMA AND C n i N T R O L - S S S W I T H I O O F S U B J r I N T E R N A L C Q N T R O L , S E N S A T I ON  4. c* 6671. 7 . 457. 3. 50?. 7. 563. 7. "240 f. " "9." 37 2 0 . 10. 90349. 6. 101112. 3. 121314. 7. 121943. 7. 1241 6 7." "4." 131313. 8. 1912 3 5 . 7 . 214714. 224903. 9. 23560?. 6. "241805. 7. 261039. 7. 330043. 356126.. 7. 4040 4 4 . 6. 449771. 5. • 3 ^ '44 39 71 . 474747. 6. 6. 5197 2 5 . 614715. 6. 654321. 5 . 7. 654537. 7. '755316. 6. 306662. 8. 960321. 977713. 4. 998377. 5. 999000. 7 . 4  4 . 1 1 . 11. 11. 4. 7 . 6. 1. 4. 1. 4. 3. 1. 2. 4. 6. 3 ._ 6". 2. 1. 4. 4. 1. 6 . 2. 1. 4 . 1. 5. 6. 11 . 11 . 1 1. 1. ""3. 4 . 1. 3. 4. 1 0 . 3. 1. 1. 4. 1. 6 . 1. 5. 2." 8. 1. 1. 4. 1. 4. 9. 4 . 1. 6. 1'.' 4. li 7. 2. 4. 8. 4. •5. 9. 3. 4. 4. 2. 1 . 8. 5 . "7." 6 . i."' 7, 1. 5. 5.  6 . 8 , 5. 7. . 6.  1 .  4. 6. 4.  9. 1. 1.  11. 11. 8. 3. 2. 3. 4. 10. 8.__ 2. "2.~ "5". 4. 10. 3. 9. 5. 3. 7. 11. 11. 3. 10. 2. 10.  SEEKING,1G  CHOICE  DILEMMA  1 1 . 1 1 . 1 1 . 11. 11. 7. 2. 4. 5. 9. 10. 7. 5 . 7. 9. 1 0 . 5. 6. 6. 5 . 7. 8. 7. 9. 1. 9._ 1 0 . 5._ 7._ 5. "6." "7. " 8 . ' 9'. "id"."" 7. 5. 5 . 6. 3. 9. 10 . 8. 7. 5. 7. 9. 10. 3. 7. 8. 3. 8. 4. 5 . 9. 1 0 . 2. 9. 11. 11. _11_. 1 1 . 1 1 . 7. 6." " 9 . " 2 . "7." ' " 5 . 9. 8. 5. 9. 7. 6. 3. 7. 8. 2. 5. 4. 6 . 10 . 2. 5. 7. 7. 7. 2. 3. 10. 5. 5. 10. 8. 7. 9. 2. 3. 5 . '"' 7 . '" 9 . 4 . 8 . TO. 7. 6. 5. 10.' 3 . 2. 9. ' 4. 8. . 7. 5. 4. 5. 10. 5. 7. 8. 1 0 . 9. 3. 10. 3. 7. 6. 8. 9. 10. 3. 5. 5. 2. 4. 9. '5 "fl . " "4. "1 0 . " ' 5 . 4. 11. 5. 8. 7. 6. 7. 4. 10. 7. 6. 3. 1 . 5. 3 . 9. 2. 7. 10. 5. 6 . 11 . 7. 6. 7. 5 . 1 0 . 1. 8. 2. 3 . 7 . 2. 9. 5. 6 . 10. '2.To." 5." 8 . ' 4 . '3.'" ' 9 . 8. 9. 2 . 1 0 . 3. 7. 6. 7. 5 . 8. 9. 6. 3. 10. 7 . 5. 1. 3. 2 . 10. 6. 1. 5. 10. 2. 4. 3. 8. 9. 7. 8. 9. 5 . 9 . 7 . 3. 2 . 10.  RANKS  7. 7. 9. 7. 3. 5. 5. 7. 5. 7. 3. 9. 7. 7." "9"."" 7. 5. 7. 7. 5. 9. 9. 5. 7. 7. 5. 9. "9." " 5 . " 5. 9. 3. 7. 7. 7 7 5. 5. 5. 7. 7. 3. 5. 7. 7 . " 7. 5. 1 . 7 . 7. 7. 10. 10. 9. 7. 9 . 10. ?^ 7. 9. 7.' p . " 7. 9 . 11. 5 . 1 . 3. 5. 7. 7. 9. 9. 7. 9. 3. 1 0 . ' 9 . 5. 5 . ' 1 0 . 9. 5 . 9. 9. 7. 37 . 5. 5 . 5 . 7. 9. 7. 7.  AND 1 0 M I N I M U M  9.  7. 10. 10. 9.  10. 5. 5. ""3." . 7. 7. 7. 10. 5. 5. 5. 7. 7. 5. "7." 5 . 10. 9. 10. 3 . 9. 9. "5. ' 7 . 9. 5. 1 0 .  1 0 .  ODDS  7. 9. 5. 9. 7. "5."' 9.  3. 7. 7. "' 3. K  10. 7. 9. 9." 7. 9 . 10 9. 9. 9. 7. 10.  T "7.  7. 9. 5. 10. 10.  ~~r~. 9. 5. 3. 3. 7. 5.  7. 3. 7. 7 7. 5. 9. 9 . 9. 3. 7. 5. "7. '' 5 . " " 7. 1 0 . 5. 1. 10. 9 . 10. 10. _7. 5. 9. " S T "11. 7. 1. 5. 7. 9. 7. 7. 3. 3. 9. 9. 9. 5. 5." T . " 9. 5. 5. 9. 10. 9. 3._ 5.' 5. "'3. 7. 9. 3. 3. 9. 9. 9. 1 0 . 10. 7 . #  APPENDIX' A-1CHOICE""DILEM?/ A. IE'"CONTROL" SSS" 1 row r>er s u b j e c t , s t a r t i n g v/ith s u b j e c t ' s I.D., IE C o n t r o l Score," SSS Score, 10 Choice Dilemma Ranks and 10minimum odds f o r 10 items.  I . 5 .  9.  H  O N  4. 30. 3 j . 30. 30. 0 . 30. 6671. 40. 43. 10. 10. 5. 30. 457. 10. 25. 40. 0 . 10 . 1 0 . 5 0 2 . " 2 0 . ' '2 0 . " 3 0 . 20.' 20. 10. 563. 20. 10. 10. 40. 10. 40. 240 1 . ZC-. 40 . 1 0 . 10. 30. 4 0. . 3 7 2 0 . 35. 10. 10. 20. 40 . 4 9 . 9 0 3 4 9 . 10. 45. 15. 15. 40. 25. C. 50. 0. 50. 0. 101112. 0. 1213 1 4 . 1 0 . 0. 0. ""'o'. 0 . "4 0 . 121943. 0. 20. 0 . 30. 30. 20. 1 2 4 1 6 7 . 30. 45. 40. 0. 0 . 20. 1313 1 3 . 4 " . 43 . 3 0 . 30. 40 . 4 5 . 191235. 0 « 10. .30. 0 . 10. 40. 214714. 40. 20 . 0. 20. 20 . 2 0 . 15 ." 4 0 . ' " 1 0 . " 2 2490 3 . ' " 2 0 . 15." "40. ' 2 3 5 6 0 2 . 30. 0. 30. 0. 40. 40. 0. 46. 241RG5. 30. 25 . 10. 45. 261C39. 41. 30. 25. 0 . 10 . 2 5 . 3 3 0 T 4 3 . 5 0. 5 0 . 25. 40. 45. 50. 47 . 4 0 . 3 5 6 1 2 6 . 40. 10 . 2 0 . 3 0. " 4 C 4 0 4 4 . ' C . 45 . ' 0 . ' 0'. ' 0 . " 2 0 . 10. 4497 7 1 . 2 0 . 0. 10. 10. 40, 4 4 3 ^ 7 1 . 10. 3.0 . 1 0 . 0 . 20. 40. 4 7 4 7 4 7 . 40. 4.5 . 0. 10. 10 . 3 0 . 5 1 9 7 2 5 . 30. 43. 10. 10. 40. 45. 6 1 4 7 1 5 . 35. 20. 40. 30 . 3 0 . 45. "654321. 40." ' 4 5 . "20. 10. 30. '50. 6545 3 7 . 15. 40. 10. 0. 20. 45. 7 5 5316. 35. 0. 30. 30. 10. 35. 8 0 6 6 6 2 . 20. 40 . 4 0 . 20. 10. 40. 30. 40. 40. 40. 20. 20. 9 6 03 2 1 . 30. 4 0. 9777 1 3 . 4 0 . 40 . 2010. "' 9 9 8 8 7 7." 2 0 . "' 0 . ' 0 . " 1 0 . 10 . " ' 0 . ' 9 99000. 43. 45. 25. 25. 40. 40.  30. 0. 30. 3 0." 2 0. 10. 10. 20. 50. C. 40. 10. 40. 40. 20. 25." 25. 10. 20. 40. 30. 20. 20. 0. 20. 35. 20. 45." 3 0. 25. 0. 10. 20. 15. 10.  30. 30. 0. 30. 0 . 20 . 0 . 25. 20. ""20"." " 1 0 . " 40." 20. 30. 45. 40. 10. 10. 0 . 20. 30. 20. 40. 25. 0 . 50. 0. 0. 20. "20. 30. 0. 10. 3 0 . 40. 30". ~ 2 0 T 1 0 . 10. 10. 20. 20. 20. 30. 0." " 0 . "" 3 0 . " 30. 0. 10. 30. 15. 30. 15. 40. 0. 0. 0. 50. 10. 30. 10. ' 20.' 40." 4 5 . 25. 30. 40. ?o. C. 40. 0 . 10. 20. 40. 30. 20. 0. 0. 40. "10." "10." "49. 15. 10. 20. 35. 20. 35. 40. 0. 40. 0. 0. 20. 10. 40. 10. 0. " 0. "10. 30. 20. 10.  30. 30. 30. 49. 0 . 10. 40. 0. 49. '2 5 . " "' 0 . " 5 0 . ' 20. 0. 49. 30. 20. 45 . 30. 10. 40. 0. 49. 45. 0. 0. 50. 40." 0. 49. 45. 20. 49. 25. 49. 10. 3 ^ • 10. 45. 49. 40. 10. 49. 40. 40. 20. 2 5 . "" 1 5 . 49. 40. 40. 40. 20. 50. 30. 20. 49 . 40. 50. 40. 45. 20. 50. 20. 0. 50. 10 . 0 . 40. 45. 4R. 50. 45. 40. 49. 0. 40. 30. 48. 40. 50. 10. 0. 45. 15. 0. 35. 10. 10. 50. 45. 50. 50. 20. 10. 0. 30. 20. 50. " 0 . "10. 40.' 43. 10. 49.  30. 20. 25. 0. 20. 1 0. 20. 45. 0. •" 0 . ' 0. 0. 40. 30. 30. 20. 0. 40. 4TT.  0. 30. 30. 0. 3 0. 40. 25. 3 5. "3 0 . 0. 0. 0. 20. iO. 20." 0.  4." 30. 5 . 2. 2. 2. 2. "2. 0. 3. 3. 3. 4. 3. 5. 2. 4 . ' 3. 4. 0. 3. 3 . 3. 2. "" 4 . " "'"5," ""4. 20. " 3. " 3. "' 3. 1.0. 4. 3. 5. 5. 2. 3. 3. 3. 3. 30. 3. 3. 2 . 3. • 20. l. 2. .3. 2. 2. 1. 3. 10. 2. 1. 1 . 2. 1. 1. 2. 4. 50. 2 . 5. 3. 2. 1. 2. 3. b . " " 2 . " 2 . ' 3. 5. 2.' 3. 30. 4. 4. 3. 3. 2. 2. 2. 4. 4. 3. 20. 2. 5. 4. 2. 20. 3. 2 . • 3. 0. 2. "2. -) .30 . 2 . 4. 5. 4. 1. 2. c * i 4. 30. 3. 4. 4. 5 . 3. " 4 . "~'Y. 4. 10. 5'.'' 4. "" "2." 5. 4. 20. 2. 5. 3. 3. 2. 3. 20. 3. 2. 2. 2. 3. 3. 2. 25. 3. 2. 3. 4. 2". 2". 4. 5. 5. 4. 5. 40. 3. 3. V. 2 5 . 4. 5. 5. 5. 5 . 4. -> • 5 • 4. 3 0 . "' 3 . " ' 1 . ' 37' 5." 2. 4• 20. 2. 2. 3. 3. 4. 2. 4. 4. 0. 5 . 3. 3. 4. 40. 4. 4. 5. 5. 5. 4. 5. 10. 2. 2. 5. 5. 3. 3. 10. 4. 3 . 4. 3. 3 . 3. 3. o jL # "40. 1 . ' 2." "2. 1." 1." 25. 3. 4. 2. 5. 0. 2. 2. 20. 2. 3. 2. 3. 4. -1 . 3 . ~i ^ 40. 2. 3. 4. 3. 2. 5. 20. 3. 5. 5. 3. 1 . 2. 3. 2 . 3. 10. 2. 2. 3. 2. 2. 4 . " 5. " '5.' " 5. 3. 30. 3. " 3. 4. 3. 4 . 0.- 4 . 5. 5. 5.  .  ^.  3. T " . 4. 2. 4. 5. 4. 2. .3. 5. 2. 3. 4. 3". 3. 2. 2. 1. 3. 3. 5. 1. 1. 5. 4. 3. 1. 2. 5. 5. 2. 2. 5. 2. 3. 3. 3." 2. 3. 5. 5. 5. 4. 3. 4. 5. 3. 3. 3. 5. 2. 5. 4. 3. 2. 2. 4. 3. 3. 1. 5. 3. 3. 2. 2. 5. 2. 3. 5.  ._  ^  "3 7" "5".' " 3 . " 2 : . " ~"3'. 4. 4 . ' ' ' 1 . ' ; 3. 4. •7. 4. 4 . 4. 3. 2. ' 3 . ' 3 . "' 4 :' • .2. " '2.' 4. 5. 1. 3. 2. 3. 3, 2. 2. 3 . 2. 3.'4. 3 • i. 2. 3". 5• 1. 1. 1. i • 3. 5. .3. 2 . 1. { m 1. 3. 2 . 1. 3. • 3. 2. 2. 3 • 3. . 4. 2. 5. 3. 3 • 1. 3 • 3. 3. 3. I, 2. 2. 2. 3. 2. i. 2. 3. 4. 3. 2. 1. 3. '4. 2. 5. ' 2 5.'" 5. " 3. 1. 1. 4. 2. n 2. 3. 3. 1 . 3• £. * i • 2 . 3. 1. l . 3. 4. 4. 4. 4. V • 5. 4. 4 . 4. 5. 3. 4. 5 . 5• 5. 4. 1 . 4. 3. 2. 3. • 3. 2. 3. 3. 1. 4. 3. 3 . ""3 . 4. 3 . 1. 2. 3. 4. 5. 3. 5. 5. 5. 3. 4. 3. 1. 2.. 3. " -a ^ ' 2 . ' '2 . ' 2 . "" 4 . 1.' 5. 4. 4. 5. 4. 3 . 3. 1. 3. 2 . 2 . 1 . x. 5. 2. 4. 2. 3. 2. 2. 2. 4. 2. ' 3. 2. 1. 3. ' 5--"' 4.'"" 4 . ' " 3 . " "' 2 . 2. 4. 5. 4. 5. 3. 3. 4.  #  ^.  ^.  APPENDIX A-2 EXTREMITY CONFIDENCE IN JUDGMENT 1 row p e r s u b j e c t , s t a r t i n g w i t h s u b j e c t ' s I.D., 15 e x t r e m i t y s c o r e s , 15 c o n f i d e n c e s c o r e s f o r 15 i t e m s .  Os Os  t L I S T  NEWBAS 1  1.  2  5  3 a. _ ""' "  5 " 7  6  ~ "~5.  8  9 11 1 2 1 3 14 15 1 6  4  l G j _2_.__i>. 5 6 f. 4 . 2. 1 0 . 2401 . . 2'." 1 . 37 2 0 . 3. 5 . 5. 90349. 7.  17 "18  4 .  "5. 5.  21 22 23 24 25 26 27  12194 5. 8. 12416 4. 3. 13131 5. 5. •  28  7.  5.  "8.  5.  30 31 32 33 34 35 36 37 38 39 40 41 42 43 44  1.  4.  A.  1.  4,  6. 2 8 6  i".  4;  6. 571 5.  4.  4.429 2.  4.  i. 1.  3.10.  6 .  1.  7 .  4 .  3 .  '(»"." 8  .""6.  9 .  1.  1.  4. ' 7. 1 0 . 1 0 .  _ 5 0 .  70.  5.  97' 50. 9.  100.  50.  1.  50.  6. 143 1. 2. 5. 999. ' 4 . 7 1 4 4. 4 . 1. 6. 357 sc.  7 .  5 .  1. 4 . 5. 9 . 8 . 1. 9 . 1.10. 4 . 1. 9 .  1. 3. 1. 8. 1.  4. 2. 4. 6. 42 9 9 9 9 .  0.10  6 .  3.  5. 143  1. 2 . 9 . 10. 9 . 9 . 6. 1 . 214714.  4 . 8. 1.  3. 5, 8. 143  3. 7. 7. 5. 3. 7 .  .  191235.  5.  224903. 5.  5 .  5 .  5.10.  5 ,  1.  1. 2 . 5 . 8 . 5 .  4 . 1.  235602.  1. 9 . 2 . 4. 3 . 6. 1 0 . 1 0 . 6 . 1 0 . 24 1 8 0 5 . 4. 9 . 1. 7. 3. 4 . 3. 9 . 5 . 2 . 261039. 5.  1.  0 .  330043. 5.  0.  1.  356126. 4.  2.  5.  404044. 3 . 9 9 .  6 .  4.  90.  3. 6 . 8 5 7 U e. 1 0 . 1 0 . 5 . 3. 80. 1 . 9 . 1." 3. 2 , 9 . " 3." 9 9 9. 10. 4 . 5 . 5. 5. 714 999. 4 • 5. 1 . 1. 5. 9. 5. 4. 5'*' V.'"4. ' 3 . 4 2 9 " " 7 b . " 4 0 . 9. 2. 9 9 . 3 . 5. 9. 1, 0. 9 . 6 . 3 . _4._429_ _9_0. 4. 1 . 1. 4. " 1. " 4 .  ! . ' • ' < . ""'7.  121314.  20  29  6.  101112.  1 9  4.  2. n  502.  10  1.  2. _ 9 . _ 9 . _5. 5 . 66 7 1 . 4". 5. 6. 1 0 . 8 . 6. 3 . 4 b / . 5. 1. 2 . 6. V . 1. 5 . 6 . 4.  1.  4,  5.000 2.  4 .  2. 4 , 5.571 3. 4. 4. 857 4, oco 4, 143  2. 1. 3 . 1 0 . 9 9 .  4 . 2 .  9.  1.  2.  2 .  3. 000  1.  3.  1. 2 . 1 C . 4.  1. 1.  9. 9. 6 . 2. 9. S . 1 0 .  6 .  " 3 .  4< 500 4 . 4 .  5.429  6.  5.  4 .  2 .  5. 833  1. "999. 9. 100.  2.29  2.29 2- 29 _70. 4 0 . 60. 2 . 1 7 " " 2 . 1 7 " " ? .1 7 ICO. 90. 3.67 65. 2.71  60. 1 0 0 ,  65. 2.33 2 . 42 " 9 0 . 5 G , 70. 2.71 2 . 71 ° 0 .  B5._  Tfo'c T . _  999. 3.5C 75.' 2.75  _2 .7I <f!' 1  90. 2.43 999.' 2.20 90.  9 5 .  95.  8 0 .  70.COO  7 5 . 72.857  "60.  69. 286  9 0 . 9 0 . 7 1 4  6 . 4 C 8 - 2 5 . 6 . 5 9 8  0 .  4 . 2 4 7 - t . 6.984  3 5 .  9 9 9 .  9 9 9 . 9 ^ 9 .  2 . 25 " 5 0 . ~ 9 0 .. ' ' 6 0 . 2.00 2 . 13 4 0 . 20. 8 5 .  9 9 9 . 9 9 9 . 0 0 0 9 9 9 . 0 0 0  1 6 .  2.29  75.  2 .  50.  7 .  6 5 .  7 3 5, 7 1  4 . 9 7 7  6 .  6.583  3 7 .  ' 7 0 , 5'. 999.  80. 5.  2.  999. 1 .  85.  65.  1. '5. 9. 95.  1.  999.'"  0". 1. 20.  20.' 3.60 80.  - 7 . " 3 6 .  6 .  4 .  -42.00  2 0 .  1 3 . 0 0  11.  2 2 .  17.  • 10.00  ""7."  1 6 .  3 i .  -15.00  - 2 .  9.  -14.00  2 .  16.  67.00  9 . -44.  999".999. 000999". 0 0 0 "-13".  7 0 .  50.  4 0 .  6 8 5. 7 1  6 . 6 2 5  100.  - 5 .  ""-37"  .  30. - 1 0 .  6":b"c  4 0 .  -85.OC  3 .  6 .  2 1 .  -21.01  11.  - 3 .  24.  -15.0(  - 1 0 .  23.  - 3 5 . 0 0  4. 3 . -I. 1 7 .  6 .  2 0 .  - 8 V . 4 .  11. - 1 5 .  26** 9 . 30.  7 . C O I.'00* - 1 1 . 0 0 - 5 9 . 0 0  2. 50  T;  2.14  - 7 .  2 . 20  0 . 20. 9 5 . 5 3 5, 7 1 7.520 - 3 2. 50 35'. ' "40 . " 7 5 . 60'."" 5 5 . 5 9 , 2 8 6 6 . 4 4 6 ""27 .2. 5 7 3.29 2.6C 999, _999_._ 9 9 9 999. 999.999. 0 0 0 9 9 9 . 0 0 0 1 4 l.*R3 83 ' 1.83 75. 69, 70. 4 0 . 1 0 0 .72.000 3 . 1 2 5 5 60.  2. 50  - 1 3 . 0 0  1 9 .  07  9 ' 9 9 ". " 9 9 9 .' 2.20  7 5 . _6J_. 1 4 3  "'"3 . ' 5 1 1  Too'.  1.  1 8 .  1 4 .  ?'. 29  5C. 1 0 0 . 2. 00  " 5 5 . " 6 2 ,0 5 7  1 . 999.  10.  - 4 4 . 0 0  2.CO  "1.  1.  10.  0 0 " " " 2~. O C  2.43 2 ,43 2.43 999.999 . 0 0 0 9 9 9 . 0 0 0 999. 9 9 9 , 9 9 9 . - 3 . 999. 1. 4. 2.00 2 . 00 2. 00 80. 9 5 . 70. 1 0 0 . 85. 65. 5 0 . 77.857 5.064 2 3 . 5. 1.80 I. 9 2 1 . 2.3 3 70. 4 0 .9 0 . J L C C _ . ___80_. 5 0 . 6 0 . 70.000 4 . 8 7 8 2 . 5. 3.OO" 29 2. 20 ICO. 85. 9C. 9 0 . 30. 7 5 . 77.857 8.495 2 4 . 2.29 1. 1.67 79 l._ "80 . 90. 80. " 5 0 . ' 80'."" 7 2 . 8 5 7 57255" "34. 2.43 1. 2.43 2. 75. 80. 60. 90. 65. 7 2 . 143 4 . 8 7 1 1 1 . 70. 4. 1. 2.33 2.33 2. 33 90.  0.  2. 14 "10. 2.33 90.  ;  9.  6 .  .  17.  0 .  .  2 3 . - 1 8 .  "15"."' " " " 9 " . 0 0 0. 3 .  - 3 . 0 0 - 3 9 . 0 0  2. 14 "15.  2 0 . 3 0 .  1 4 .286" "5.550  15 . "  - 9 . ""i 2 . " " '  1 4 .  . p .  2 1 . " ' " " 15.00  2. 40 30.  85.  8 0 . 7 5 .714  5.575  APPENDIX A-3 IN BASKET RESPONSES 2 rows r>er s u b j e c t , F i l e Numbered. . . 1 s t row: 7 memo s t r a t e g y s c o r e s , memo s c o r e w/ 5&6 i n c l u d e d ¥emo Score 5 & 6 t r e a t e d as 2.5 and Memo Score 5&6 Excluded; 2nd row: 7 minimum odds, minimum odd average,, 7 Grade assignments, average Grade a s s i g n e d , weighted Minimum odd -score v/ith Grade as w e i ^ X 4 S e m a n t i c ^ D i f f e r e n t i a l Scores, a c o n s o l i d a t e d SD S c o r e . m  - ? .  6 .  6 . 0 0  c o  I  -I  (M ~*  -0  1  °  o  o !  c i (  O  w  IA w  O  c  rv i  • r\•  ~* in  (\j  c- ,r\j  <7 '  in  o  in  ^ C (\ O O  O :o <  ro  O ^  o  I IT.  m  <r M  -  <r m  •  ro  X  u"v co cc o* r-i O • CC : • <? • CT- • O » O CM 'CM O n j r>; a - .(M .—< :  o w  IT. ^ M •  H  c  O  CT-  ro ^ v*-  >o oi  M  tr>  C]  OOo  P J  c  o  c .LO rr- r\j cr  o o  —' o ^ oc  a a>  o o  w  -  ^ in c i v  I—I m f-in  ,-. *V[ -T  ro ^  r-  IT.  —t  O o o  ^  ^ iv. - ( ^ ri*-; tri ir.!  h m  N  * O c o  C'ivf o ; i  O o o  EH  •o  n ^ m <i (VJ IP. isf IA vt m \t- r- 'r\j r~~ m m c - inirn o ^- cc ^ ir. c • f -  m v0  vj- rvj u~>  o  m  vj-  H  IP  o  H  r>  O  <r <} r~ ~  -0" •—< ro  <v  fNJ  IT ^ !f\ if ^ L", --i 1  c ro ro f\: <f ^ r»  <t -3- <j-  o  <M  <r>  sr  T-  c  o  —• m  X M D S  o  a-  co  p.;  ^  •£>  vf o  m  *-> 0 | f \ j  f-  —•  —*  a  O  -j^  • IT * O 1  IT. 03 LO M N ^ N r~. O r- C O  jro <-« -o if\t ,_. .-J r- c , o . . _ • !ro • r— • u. • o * c c ! ^ c m »t M T c c ? IP m |LO o u", O jo rcr '.o • -O • vC • r— • CC •1c* « C7- • Q; • C" o o nj m . .  —  C  a ; cr o w m .f </\ . o r - ' x o ' O p - ' t v m . j ' m ^ c p ^ c c ' c r o u . <f ^ i n ir. i n IA ir. t n ir.  •  EH  W W W < t-H  UTILITY RESPONSES,COMEf'NSATION TM THOUSANDS O F D O L L A R S , S C A l F f l F W A G E R Iti A M O U N T S SVF'CIFIFD, R A T E OF R E T U R N I N Pf. R C G NT A G E , NE T P R O F I T IN P R O B A B I L I T Y MISSING I S A 9 9 . OR A 0 . 0  4.  a.  6671 . 47.  10.  20  0 . 3 00  40.  a.  0. 500 24 13. 0 . 3 50 0. 600  3 0. 0. 150  4 . 0. 300  35.  2.  0. 150  0.250  600.  0.10 200.  0 . 2 50  O.CO  6f 0 .  0.25 100.  0.300  1.00  4 5 7 .  15. 25. 30 40. 2. 1.00 3 0 • 0 . 2 0 0 ' b". 30C 0 . 1 5 0 0."25 0 100.' " 1 ^ 0 . 502. 25. 12. 40 . 100. 4 . 0.50 12 . 0 . 2 0 0 0 . 300 0.200 0 . 2 5 0 2.oo_._ 5 0 . 563. 8. 15. 20 30. 3 . 1.30 40. 0 . 4 0 0 o. 5 0 0 300. 0.300 0 . 1 0 0 600. 14. 15 __.2401_.. 1 2. 16. 1. 0.50 0.050 0 . 2 5 0 "" 4 0 ". " 2 0 . 6 0 0 " . " " 0 . 1 5 0 " o. 4 0 0 14. 3720. 12. 15 18. 0. 0.30 200. 0 . 2 50 0 . 130 1 . 0. 3 8 0 0 . 2 5 0 5. 90349.  10.  15. 0.100  600. 6.  J L O l l 12_.  3.  22  fl  4  1 50  ' " 4 Q . " ' " 0 . 5 0 0 " " "o'T" 5 0 0 121314. 15. 22. 30 40.  121943. 124167.  0.300 0. 200 16. 12. 20 600. 0.100 0. 200 18 13. 10.  30.  3 .  0.07 0 0 . 1 2 0 10. 0.  4C .  1.50 0.500 0 . 5 0 0 "60 0.' 3 0 0 . 3 5. 3 . 0.25 0.500 30.  0.300  6C 0 .  5.  9.990 0 . 1 5 0 30. 4.  0 . 2 5 0 " 0 . ' '4 00 ' O . T 0 0 0 . 2 5 0 " '6"ooY 13 131313. 10. 11. 15. 1 . 600. 0 . 5 0 0 0 . 750 0. 2 50 0 . 5 0 0 40. 20. 191235. 12. 56 . 145. 5. 0 . 1 0 0 0 . 100. BOO. 0.10 0 0.ICO 40. 214714. 15. 75. 3. 30. 50 " " " 4 0 . " " 0 . 3 0 0 " 0 .""5"00 ' 0".' 1 5 0 0 " . 1 0 0 " ' 6 0 0 ' . " " 10. 14 224903. 12. 17. 0 . 235602. _241B0_5. 261G39.  .  0 . 5 0 0 0 . 750 24. 20. 0 600. 0 . 1 50 0 . 2 50 15 9. 12.  0.250 0.  0.500  0 .00  0.330  0.60C 5.00  0"."400 " 0 . 10 0 3.00 0.460  0.500 2.50  0.750 0.900 15.00 0".750  I.  000  2.50 0. 750  0. 600 0.00  2 0 . 0.25 50."  0.900  0.80 0  0.800  0 .00 0.900  1 .CO 20.  1 .00 0.330 0.500  0.00 5 . 0. 50 "300.  0.00 0.500 0.500  0.00  0.00  5.00 0.4C0 0.600  0.00  0.00  0.00  • 0 .00  0.00 0.900 0 . 8 50  0.00  • 0 . 0 0  0.00 0.600 0.700  0 . CO  0.00  50.00 0.500  0 . 5 0 0 '  25.00 IOC.CO 0.600 0."400" 30.00 300.00 0.500 0 . ^ 6 0 0.  00  0.750  0.00  .... ...  3000.00  0.00  0 .00  150.00 1500.CO 0.750 0.850  15000.00  0.00 0.750 0.750  O.CO  0.00  0.00 0.800 0.700 0.0 0  0.00  0.00  0.700  0.00  0.00  -"• • - -  0.900  10.00 100 0 . 0 0 0.500 0.330  0.00  0.00 0.750  5.CO  20. 0.10  0.330  40..  20. 0.35  0.700  0.500  50.00 500.00 0.50C 0.670  0.2 0  0. 7 0 0  0.300 4 . 0 0  „  0.750  0.00 0.00 0.75C 0.750. 5.00 0 .00 0 .00 0.700 0 . 4 0 0 "0. 5 0 0 0 . 6 0 0 "  0.750  0.5 0  ' 2 0 0 ' . " " 0 . 2 5 0 " 0"." ' 4 0 0 ' " 0 . 1 2 0 ' 0 . 2 5 0 " ' " 5 0 " . . " " 2 0 . 15. 20 2 5. 0 . 12. 1.00 0 . 2 5 0 0 . 7 50 0 . 2 50- 0 . 5 0 0 600._ 3 0 0 . 40".  APPENDIX A-4  0 . 3 0 0  0.700 0.700 1 0 . C. 0  40.  3 .  0.12 I 0.160 21. 2.  300.  0.70C 1.00  0.500  O.OC 40.  ""40 .  600.  0. 30 2 0 .  0.aoo  0.00 1.000 30.00  O.OC 0 .00 5000.00  0.00 0.400  o.c-o  0 . 7 5 0 0. 4 0 0 C . 6 0 0 " 10.CO 100.00 1000.00 0.750 0.750 0.500 C.5C0  - -•  0.00  '  0 .00  10000.00  '  "—  UTILITY RESPONSES  l^l%^ftb.,  k Compensation Response, No. o f NO answers t o  of wa."'or, 5 s c a l e o f wager r e s p o n s e s . 2ncTrow: 5 r a t e o f r e t u r n r e s p o n s e s , 6 n e t p r o f i t ocPle  responses  g  330043.  3 0 . 3 5 . 46" 6i. 3. 0.50 5.GO G.OC COO 0.00 600. 0.500 0.500 0.130 0.250 40. 2 0 . 0.750 0.670 0.670 0.670 3561 26._ 10. 30. 60. 200. 4._ 0.49 0.00 0.00 O.CO 0.00 600.' d .500 0 .750 6."'250 0 . 50 0 " 4 0 . " 8. " 0. 500 0. 500' "0. 5C0" 0. 500" " ~ 404044. 10. 11. 13. 14. C. 1.50 15.00 110.00 1005.00 10010.00 600. 0.250 0. 380 0. 130 0. 500 40. 2 0 . _0.2 5C_ _ 0 6 0 0__0_. 750 0 .250 449771. 10. 13. 0. 0. 1. 0.50 5 . CO 5'CTOO" "~"!TO~OT6T5 5"0""0"7C0~ 600. 0.000 0.000 O.COO 0.000 40. 2 0 . C O C O C O C O 0.000 0.000 4439_71. 12. 18. 30. 45. 3. 0.49 3.00 0.00 0 .00 0 .00 "" "40 . " 0 . 2 0 0 "0 "."400 0." 150'07250 600. 2 0 0 . 0.500 0.500' 0. 500 0 . 5 0 0 " 474747. 12. 14. 19. 23. 1. 0.00 O.CO 0.00 O.CO 0.00 40. 0.450 0. 70C 0. 200 0. 400 600. 300. 0. 500 ^ . 5 50 0 . 4 50 0.400 519725. . 10. 13. 15 . 16. """5. 0 70C 0.00 C'OO" GTOO" 0"700~ 40. 0.250 0.50C 0.250 0.200 600. 300. 0.930 0.950 C.90C 0.500 614715. 16. 50. 70. 80. 3. 0.25 1.00 COO 0.00 0.00 2 0 . 0 . 3 0 0 ' 0 . 2 5 0 0.700 0.400 2 0 0 . 50. C 8 0 0 0.700 0 . 3 f 0 0.800 654321. 15. 17. 20. 30. 5. 0.00 0.00 0.00 0.00 O.CO _40._.0_.18_0_j). ?0p 0. 150 0. 120 6C0. 30C. 0.85C 0. 750 C 700 0.700 . 654537. 755316. 806662. 960321 . J577713. P96S77. .ocgcoo.  10." 14. . 17. 22. 3. 40. 0.100 O.lOO 0. 050 0.080 9. 13. 17 . 23. 2. 40. 0.350 0.550 0.180 O.3O-0 6. 7. 8. 9. 0. 48. 0.500 0.750 0.250 _0 . 5r 0 9. 13. 25 . 5 07 " ' 2 6C3. 0.400 0.60C 0.250 0.450 16. 25. 28. 32. 4. 401 0.200 0'"503 6'."200 0 . 300 10. 12. 14. 0. 0. 40. 0 . 1 0 0 C40'J 0.05Q 0. 200  "a. 60C  i"2. 16. is". "5* 0.500 0.750 C.250 0.500  APPENDIX A-4 UTILITY RESPONSES  0.70 4 .GO " 0.00 O.CO 300. C.400 C 700 0.6CC 0.400 0. 35 3 . 50 2C00 O.CO ftOO. ICO. 0.550 0.75C O . « 0 0.600 0.40 3 .00 2C0C 100.00 6 60. J. 1 C 0.920 0. 50 0 _ C 5 ' ? . C_.670 . ' 0 ' . 50 2.0O" ' K .00 O.CO 47. 5. 0.300 0.200 0.300 0.300 . O.SC 0.00 O.CC o.CO 600. 5 0 . 0.800 1 .000 1. C-r 0.700""", ' 0.50 5.CO 5C.C0 500.CO 600. 3 0 0. _ C . 750 _0 .J>CO .Oj.600 600.  c " ' ."o.'oc " '"'--o 20. 0.800 0.700 0 . i 5 0 0.900  ~o7o"o 40.  T76o  '•  bTccT 0.00' 0.00  CTocT 0.00 5000.00  67<W  (CONTINUED) H O  171  APPENDIX A-5 PERSONAL RECORDS 2 rows per s u b j e c t .  1 s t row SUBJ's I.D. SEX:  1 f o r Male, 2 f o r Female, 99 m i s s i n g .  AGE: 99 - m i s s i n g STATUS (MARITAL): 1-married, 2 - s i n g l e , 3-separated 4-divorced, NUMBER OF DEPENDENTS: AGE OF DEPENDENTS:  99>0-missing  99 f o r m i s s i n g  AVERAGE. 999 f o r m i s s i n g .  CITIZENSHIP:  1 f o r Canada; 2 f o r H.K., 3 f o r Singapore, 4 B r a z i l , 4- U.S.; 6 - I n d i a , 7 - 0 t h e r s , 0,99-missing. PRESENT YEAR: 1-MBA I ; 2-MBA I I ; 3-MsC I; 4-MsC I I , 5-PhD., 6Others, 7-MsC No. year; 8-MBA no y e a r . 99 m i s s i n g OPTION: 1-Acctg: 2-Mktg,; 3 - T r a n s p o r t a t i o n , 4-Urb. Land Economics; 5-Finance, 6-Int, Business, 7-Management Sc; 8-0.Behavior, 9 - 0 t h e r s , 99 m i s s i n g . AVERAGE GRADE LAST YEAR - number r e p r e s e n t the ordered item checked. Please see q u e s t i o n n a i r e . PREVIOUS DEGREE - two d i g i t number used. F i r s t d i g i t represent degree, 2nd d i g i t r e p r e s e n t o p t i o n . 1 s t g i g i t : 1-B.Comm; 2-Eng'g., 3-Education, 4-Law, 5-B.Science, 6-Computer Sc.; 7 - 0 t h e r s ; 8-B.A.; 9-Masters; 2nd D i g i t : Eng'g - 1 : C i v i l ; 2-Mech; 3 - E l e c t r i c a l ; 4-Chem, 5 - A g r i c u l t u r a l , 6-others; others-0 ( f o r other degrees), 99 m i s s i n g . NUMBER OF DEGREES: COUNTRY OBTAINED - samecode as c i t i z e n s h i p . Working years - no of years a t work. S a l a r y - l a t e s t s a l a r y i n thousands P o s i t i o n ( l a t e s t ) : l-h-ighe-rrlevel management; 2-middle management; 3-employee, 99-missing.  2nd row NUMBER OF SOURCES - count the number of sources o f e d u c a t i o n a l f i n a n c i n g . See q u e s t i o n n a i r e . 99-missing. TOTAL AMOUNT OF EDUCATIONAL FINANCING - i n thousands SOURCE WITH GREATEST FINANCING COMING FROM: number r e f e r r e d t o number i n the item.  172  AMOUNT OF LARGEST FINANCING - i n thousands FACE VALUE OF INSURANCE - i n thousands TYPEINSURANCE - type o f insurance 1-with savings f e a t u r e 2-without s a v i n g f e a t u r e AMOUNT OF ASSET - t o t a l i n t e n thousands AMOUNT OF LIABILITIES AVERAGE INTEREST RATE  LISTING OF STOCK P R I C E WAGER»RESPONSES IN RANKS FROM SET A TO E AND MISSING IS A 0 OR A 9 . FIVE RANKS PER SET.  ^  6671.  : j"  457. 5 0 2. • 56 3 . '""240 i . 37 2 0 . 903 4 9 .  f j j !'  i i ! [". | !  1011.12. 121314. 121943. "124167. 131313. 191235.  214714. 2249C3. ' 235602. j 241305. j 261039. i 330C43. { 356126. : 404044. ! 449771. j 4 39717.' I 474747. ! 519725. ! 614715. 654321. 654537. i 7 5 5 3 1 6 . | ",06662. I 960321. i 977713. ! 998877.  j  ;  9 9 9 0 0 0 .  4. 2 . 1 . 5 . 4 . 3 . 1 . 2 . 2 . 5 . 4. 3 . 1 . i, • 2 . 3 . .3. 4. 5 . 5 . 4. 3 . 2 . 1. 2 . 1. 3 . 4 . 5. 5 . 4. 3 . 2 . 1. 5 . 3 . 2 . 4. 5 . 1. 3 . 4. 2 . 5 . 1. 2 . 1. 1. 2. 4 . 5 . 4 . 5 . 1. 2 . 3 . 1 . 2'. 3 . 4. 5 . 5 . 4. 4. 3. 2 . 1. 5 . 4 . 3 . 1. 2 . 5 . 4. 3 . 2 . 1 . 5 . 4. 3 . 2'. T . " "4." 5." 5"." '4. " 3 . " 1. " 3 . ' 2 . " 1."" "4." 5 . " 5 . "4 . i 4. 3 . 2 . 1 . 5 . 4. 3 . 2 . 1. 5 . 4. 3 . 2 . 1. I. 2 . 3 . 3 . 1. 4. 5 . 5 . 4. 3. 1. 2 . 2 . 5. 4. 3 . 1. 5 . 4. 3 . 2 . 3. 4. 5 . 2 . 3 . 1. 4. 5 . 5 . 3. 4. 1 . 2 • 1. 2 . 3 . 3 . 1. 4. 5 • 3 _ iJ . . 4. 5 . 2 . 2 . 1. 3 . 4. 5 . 5. 4. 1. 2 . 3. 4. 5 . 5 . 4. 3 . 2 . 1. 1. 2 . 3 . 4. 5 . 5 . 4. -a '4." "1. " 3 . 2 . " "4 7" 3. I 7 2 . 2.' "1." 4 • 5 . " 5 . '4'." 3 • 2 . 3 ^ 4 • 5 . 5 . 3 . 4. 2 . 1. l . 5 . 4. 3 . 2 . 5 . 4. 3 . 4 . 2. 1. 5 . 5 .• 4 . 3. c~> . 1. 3 . d • 1 . 4 . 5 . 3 . 4. CJ * 2 . 1. 3 . 4 . 5 . 4 • 1. 2 . 3 . 5 . 4. 1 . 2 . ~3. 4 . 2 . "TT" 4 • 2. 3 . 5 . 5 . 4. 3 . 1 . 2 . 5 . 4. 3 . 2 . 1. 5 . 4 . 3 . 5. 4. 2 . -a ^ 5 . 4. 2 . 3 . 1 . 1 . 5 . 4. 3 . 2 . 2 . 3 . 4. "3 ^"2." " 1." 4. 5 . 5 ." "2. i . " '4.' 3." ~ 3 . " " 1 . " " 2.'" 4." '5. 5 . ' '4. 3." 4. 3 . 1. 2 . 5 . 5 . 3 . 2 . 4. 1. 2 . 3 . 1 . 4. 5 . 4. 3 . 2. 1. 4 . 5 . 2 . 1 . 5 . 3 . 3 . 2 . 1 . 4. 5 . 5 . 4. 2 . 5 . 2 . 4 • 3. 5 . 4. 3 . 2 . 1. 1. 5. 3 . ~"2""7 57 4. 3 . 4. 5 . 3 ^ 1. 2 . 5 . 4 . 1 . 3 . 2 . 4. 5 . 3 . 1 . 2 . 4 . 1 . 3 . 3 . 4. 1. 2 . 5 . 5 . 1 . 3 . 4 . 2 . 1 . T-> • 2 . 4. 5. 5 . 4 . 2 . 5 . " 2 . " "•1". ".3'. " 4. s. "V."' 1." "2 . "3 7 "5." 1. 2 . 3 . '4. 4." 3 . 2 . 1. 5 . 4. 2 . 3 . 5 . 4. 3 . 2 . 1. 5 . 4. 3 . 2 . i 5 . 4. 3 . X . 1. 2 . 3. 4. 5 . 5 . 4. 3 . 2 . X • 1. 2 . 3 . 4. 5 . 5 . 4. 3 . 2 . 3 . 1. 4. 5 . 5 7" 4. 3. 1. 2 . 3 . 5. 4. 1 . 2 . 5. 4. 3 . 1. 3 . 2. 4 . 5 . 5 . 2 . 3 . 4. 1. 1 . 2 . 3 . 4. 5 . 5 . 4. 2 . A- « 3 . 2 . 5. 2. 3. 4 . 1 . 2 . 1 . 5 . 4. 3 . 2 . 4. 1 . 3 5 . " 4 . 3." 1. 2 . 4 ." 3 . T"7""2." r; ^ 5 . 4." 3. 1. 2 . " 2 . " 1. 3 . 3 . 2 . 1. 5 . 4. 4 . 2 . 1. 5 . 3 . 4. 3. 2 . 1 . 5. 5 . 4. 3 . 4. 5. 2. 1. 3. 1 . 2 . 3 . 4. 3 . 5 . 1 . 2 . 4. 5 . 2 . I . 4. 4. 5 . 2 . 5 . 4. 3 . 1. 2 . 4. 3 . 1 . ' 5. 5 . 3 1. 2 . 3 1. 2. 3 . 4. 5. 5 . 4. 3 . ;> m 1 . 1. 5. 4. 3. 2 . 5. 4. 3 . 2 . 1. 3. 4. 5 . 5 . 4. 3 . 2 . 1 . 2 . 1. 3 . 4 . 5. 5. 4 . 3 . 3. 1. 4. 3. 5. 3. 5. 2. 1. 2. 1. 3. 1. 3. 5. i x . 1.  5. 2. 3.  4  ^.  w  #  APPENDIX A-6  A  5. *>  i. *  4. 2. 2. 2 .'" 4. 2 . 4. 3. 2 . 2 . 2. 1 . 3. 2., 5. 2. 2. 1 . 2. 5. 3. 1 . 2 .  2. 2. 3. 5. 4. 2 .  4. 1. 2 . 2 .  4. 1 . 5. 1. 1. 3. 5. 1 . 5 . 2. 1. 1." 1. 2 .  5#  5. 4. 4. 5. "5. 5. 5. 4. 5. 5. 5. 0. 4. 9 . '4. 1. 5. 1 . 5. 1 . 5." 1 . 5. 3. 4. 1 . 5. 2. 5. 1. 5 . 5 . 4. 1 . 5. 1. 5. 1 . 5. 1 . 4. 2 . 5. 5. 4. 1. 2. 3 . 5. 2 . 0. 1 . 5. 1 . 5.  4. 4. 3. 5. 4. 4. 4. 4. 3 .  4. 4. 4 . 0. 5. 3. 4. 4. 4. 4. 3 . 4. 4. 4. 3. 4. 4. 4. 5. 4. 3. 3. 3. 0 . 4. 4.  OVERALL" SET RANKING,'  1. 2 . 0 . 0 . 0 . 0 . 0 . 2 . 1. 3 . 5 . 1. 4. 2 . 2 . 1 . 3 . 4. 1 . 2 . 5 . 2. 1. 5. 1. 2. 3 . 4 . •3 1. 2 . 2 . 3 . 1. 4 . r. _' • 37 : i . 2 . 3 . 1. 4 . 2 . 3 . 2 . 1 . 2 . 5 . 1. 4. 3 . 1. 2 . 4. 2 . 1. 5 . 3 . 2 . 1 . 5 . 3". '57' 4 '7 1 . 2 . 3. 1. 2. 1 . 4. 5 . 3 . 2 . 3 . 2 . 1 . ? • 3 . 1. 4. 5 . 3 • 1 . 2 . 2 . 3 . 1. 4. 5 # 0 . 0 . 1 . 2 . 5. 1 . 3 . 4. 2 . 1 . 4. 5 . 1. 3 . 2 . i ~9T ~ iJL . "2 r 4 " 3 . " 2 7 ~r: " 1 ~ 3 . 2 . 1 . 3 . 1. 2 . 5. 4. 3 2 . 1 . 3 . 4. 1 . 2 . 5 . 3 . 1. 2 . 3 . 3 . 2 . 5 . 4. 3 . 1. 2 . 1. 5 . 3 . 4. 2 . 2 . 1. 5 . 5 . 4. 2 . 3 . 1. 3 . 2 . 1". " 2 . I T " 3 T 5 7"~4T 3 . 2 . 1 . 2 . 5 . 1 . 4. 3 . 3. 2 . 1 . 3 . 4. 1. 5 . 2 . 2 . 1 . 5 . 1 . 5. 2. .3. 4. 1. 2 . 3 . 3. 5 . 1. 4. 2 . 3 . 2 . 1 . 2 . 4. 1. 3 . 5 . 3 . I T - 2 . ~2"T" T T 4 . 5 _ 3 ~ 3. 2 . 1. 4. 5 . 2 . 3 . 1. 3 . . 2 . 1 . 4. 1. 3 . 2 . 5 . 2 . IT "5." 2 . 3 . 1. 4. 5 . 4. 1. 5 . 4. 2. 1. 5 . 3 . 2 . 1 . 4. 4. 2 . 1. 3 . 5 . 0 . 1. 0 . 0 . 0 . C\ "0. "'07 3. 2 . 1 . 2. 5. 1 . 3 . 4. 3. 2 . 1 . 4. 1 . 2. 3 . 5. 3. 3. 5. 3.  ^.  #  STOCK PRICE WAGER RESPONSES  1 row per s u b j e c t 5 ranks p e r s e t , f i v e sets i n a l l and 5 o v e r a l l s e t r a n k i n g .  LISTING.Of-  PERSONAL  RECORDS  1. 2 . C . O.CO 1 . ._ 5. 3. 15. 1. 1. 2. 0. I. 667 1. J.. 0. 6. C. 0.00 3. 3. 3.' 9. 4. 12. 1. 1. 35. 1. 2. 1. 457. 1. 5 5 . 2. 13. 1. 0.08 2. 1. 35. 3. 2 . 9099. 9 . " "3. 7 0 . " 1 . 1 . 99. 1. 2. 4. 1 . 2 . DO?. ) 25. 0. 3. 7. 0.99 4. 2. 2 . 0. 99. 2. 0. _ C U _ 2 . _ 9. 99. 9 . 99. 9 9 ^ 99. 563. 1 . 2^ . <39. " 9 9 9 9 9 . 9999. 0.99 9 9. 9'. 9999". 99. 9 ^ . "9999". 2. 4. 5 . 8 0 . 1. 1 . 27. 1. 2. 26. 1. 4. 2401 . 1. 9. 5 . 0 . 05 8. 10. 1. 1. 1 . 8 . "" 3 . 9 1 . 3. 5 . ' 9 9 ." 37 2 0 . 1 ' 3. 20". 6. 5. 1 . 31 ." 1. 2. C. 0.00 4. 2 . 1. 1. 1. 99. 9. 5. 50. 1. 1 . __1<^_ 90349. 2. 0. 0. 1. 2. 1 . 23. 0. 1. 2. 0.03 3 . 2 . 3. 1 . 2 . C, 5. 3. 54. 1. 1. C. 1. 2 5 . 2. 0. 0. 1. 8. 101112. 0. 0. 0. C O O 0. 1. 2. 1. 9 . C. 9 . '" 5. ' 3. 50. 1. 1 . 1. 3 4 . 1.' 37 2 7 . 5 " . 2 . 12!.'.) 4." 2. 6. C. 0.00 2. 2. 9999. <:9. 1. 5. 2. 1. 5. 1. 2 9 . 2._ _0. C 99. 3_._ 6 . 9 9 . 9 4 . 121943. 99. 99999. 0. 0.00 9 9. 9"." "9999. 3 . " 2 . 9 9 9 9". 9. 4. 60. 1. 1. 1. 124167. 2. 0. 0. 1. 1. 1. 2 3 . 0. 1. 0 . 0 . 00 1. 3. 1. 2 . 0. 3. " 9 9 . 9 9 . 9 9 . 9 9 . "9 9 . 131 3 1 3 . " 9 9 . " 9 9 . " " 9 9 . " 9 9 " . " " ' " 9 9 " 9 '.' 9 9 . " 9 9 " . 9 9 7 99. 9. 9999. 99. 99999. 9999. 0.99 99. 9 9 . 9.999. 99. 9_9_. 9 9 . 99. 99. 99. 99. 99. 191235. 99. 9 9 . 99. 0 9 . 999. 9 9". 9 . 9 9 9 9"; 99. 99999. 9999. "0.99 99. "99. 9999." 1. 0. 0. 1. 2. 5. 3. 4. 40. 2. 1. 214714. 1. 3 1 . 2. 2. 1. 0.05 2. 9999. 99. 1.' 10. _ 3. 4. 11. 1. T . " 99. 2 0. "0. 2 . 2 7 1. ~2249""0y. 1. 2 4 . 0. 1. 9999. 0.99 99. 3. 9999. 99. 2. 0. 5._ 4. 70. 1. 1 . 1 . 3 C _ _ 1_. 3j; U . _ J . . 2_^_ 6 . 235602. 3". 123. 22. "0709" 1 . 9"9?9 . 3. T7 60. 1. 1. 9. 4 . 12.. 1, 1. 2. 2. 0. 0. -1. 1. 2 3 . 241805. 1. " 6. 4. 0.08 3. 2_. _ 4 . 1. 2. 2. 3..."' "17 2 4 7 1 7" T . " 2 4 7 1 . "2". " 5 7 " " 4 7 " 8 0 " . " 1 . 1 . 2 610 3 9 . 10. 2. 7. 1. 0.00 3. 3. 1. 1. 3. 4. 4. 5. 70. 1. 1. 1. 0. 0. 1. 330043. 1. 2 6 . ~~ 3. 3. 9999. 9 9 . 1. 10. 1. " 9. 1. 0.04 6. 5. 00. 1. 1. 1 . 356126. 1. 2 4 . 2. 0. 0. 11. 2. 0. 0. _ C 0 . CO 5 . 4 . 5 0 . 1 . " 1 . " 2 . 4 0 4 0 4 4 . " 17 2 7 . 2 . " 67 C»"."" 1 7 "8. 0. 1. 2. 0.00 3. 2. 2. 4. 2. 0. 3-. 4. 12. 1. 1. J . _ 449771. 1. 2 5 . 1. 0. 0. 1. 2. 1. 8. C 0 . 00 3. 2. 9999. 9 9 . 1. 15. 5. 1. 9 1 . 2. 7, 443971. 1. 2 6 . 1. 0. 24. 7. 2. 3. 2. ^ 3 . 9 9 9 9 . 9 9 . 1. _ 15. 2. 11. 0 . 0 . 00 4 7474 7 . ' r . ^ 3 7 . 2 . 67"0 ."""l7 " 8 . 9 4. " 4 0 . 1 . 2". 8. 3. 1. 9999. 3. 2. 0. 0. 22 0 . 2. 0.06 5 1 9 7 2 5 2 . 0 _ 3 . _2_. 7 . _ JL. 8. 2. 6. 70. 1. 1. _9 9. 0. 99999. 1. 0 . 9 9 " 99". 3 . ' 9999.' 9 9 7""?." 0. 5. 3. 15. 1. 1. 614715. 1. 3 0 . 1. 4. 10. 1. 7. 7. 0. 57. 22. 0.07 2. 4._ 6. 4 . 1. 98. 6 . 3 . 15. 1. 3. 6'>4?.?1 . 1. 2 8 . T. 0 0." 7."' 8. 4 . " 1. 4. 0. 0.00 2. 4. 8. 4. 1. 30. 50. 1. 1 = o. 654537. 1. 2 4 . 2. 0. 0. 2. 2. 4.  2. 3.  25. 1 . 23.  2.  0.  2.  0. 2. 0. 1. 2 . 40.  3.  7.  2.. 0. 4. 0. 2.  1 .  4 . 1 1 .  0.  1.  1.  r  0. 2. 3. 1. 2 . 0. 755316. 1. 2 7 . 1. 0. 0. 1. 1. 3. 2 , 999 9 . 9 9. 2. 0. 806662. 1 . 2 5 . 2. 0. 0. 1. 2. 1. 1. 1. 1. 2 . 0. 960321. 1. 0. 2. 0. 0. 2. 2. 3. 3. 2. 2. 2. 0. 977713. 2. 2 5 . 1. 1. 1. 1. 1. 3 . 1 . 1 . 0 . l._ 0. " 9 9 8 8 7 7 . 1 . 2 7 . 2 7"67 ""67" "l 7 7 ."' 99. 1 . 9909. c-9. 9 . 9999. 999000. 1. 23. 2. 0. 0. 1. 1 . 0. 3. 1. 2.  1.  0. 0.  9. 0. 1.  1. 8. 13. 999. 9°9. 8. 999." 10. C 15. 4. 7. 999. 999. 10. 9 99." 2 C 7.  "12." 6. 6. '6. 6.  8. 999. 14. 3C. JO.  0.00 7. 3. 00. 6. 1. 1 0.09 6. 3. 2. 4. 80. 1. 0.08 5. 7., _ * 3. 1 1 . 1. 1. 0 , 0 . 00" 8. 5. 40. 1. 1 3. 2 5 . 7 5 0 1 , 0 . 50 . "50. 1. 1 " 99. '999. 99999. 9999, 0.99 0. _ 7. 5._ 5 0 . _ _ 1 _ . _ 1_ 1 .  / f  0. 9. 0. 7 . 4 99. 9_.  o . " " " 1 . "  ~0.  cTcb  PERSONAL R I S K P R O F I L E FOR  "d  O  CO td W O i-3 03  — !I  o  X  614715.  NOTE: THIS L I S T I N G PROVIDES YOU WITH THE SCOPES ON THE VARIOUS MEASURES AND YOUR P E R C E N T I L E ON IT THE HIGHER P E R C E N T I L E WOULD MEAN HIGHER R I S K TAKING . P E R C E N T I L E I S BASEO ON GROUP 01 STR I BUT I ON . AL SO ALL ID TO S I X D I G I T S .  > >  I.D.  W E R E  T R U N C A T E O  IN RASKCT RESPONSE: RATING DF YOUR 7 MEMO RESPONSES PY JUDGE,WHERE 1 MEANS QUICK DECISION TD TAKE R I S K Y A L T E R N A T I V E S KEAMS TAKING R I S K Y A L T E R N A T I V E BUT QUALI F l ED 3 MEANS QUICK BUT Q U A L I F I E D CONSERVATIVE ALTERNATIVE ,4 MEANS TAKING CONSERVATIVE ALTERNATIVE,!? MEANS MORE INFO? MAT I' IN ST RATEGY. NI EDEO TO MAKE DECISION,AND 6 MEANS DELAY AS YOUR SCORE 3.500 5. PERCENTIL E MINIMUM CHANCE OUT OF 1C ON THE 7 MEMOS: "5.1430 PERCENTILE 100. YOUR SCORE RATING OF LETTER WRITERS: PERCENTIL E YOUR SCORE •34.000 100 . CHOICE DILEMMA SCORE AVERAGE CHANCE OUT OF 1C YOU WOULD RECOMMEND BEFORE TAKING UNCERTAIN ACTION. 6.800 PERCENTILE YOUR SCORE 5. U T I L I T Y IT CMS COMPENSATION L E V E L COMPUTED ON B A S I S OF R I S K PREMIUM FROM EXPECTED VALUE f N PERCENTAGE: YOUR SCORE C.630 YOUR P E R C E N T I L E 5. RATE CF RETURN - COMPUTED IN THE SAME WAY AS COMPENSATION. Y O U R S C O R E 0.081 PERCENTILE 100. N E T  P R O F I T  - C O M P U T E ! )  O N  B A S I S Y O U R  ; A L F  O P OF  W A G E R S NO  -  C O M P U T E O  R E S P O N S E S  AS  W I T H  O F  R I S K  S C O R E T H E  B U Y I N G  P R E M I U M .  2.000 P R I C E  OF  PERCENTIL E 65. WAGER AND THE NUMBER  W E I G H T S :  Y O U » S C O R F 16.663 PERCENTIL E 5. COMPUTED WITH VARIANCE AND RANKS AS WEIGHTS. 9 5 . YOUR SCORE 2.433909 PERCENTILE EXTREMITY-CONFIOENCF SCORE - EXTREMITY SCOPE COMPUTED AS AVERAGE SQUARED D E V I A T I O N F R O M .50,WHIL1 CONFIDENCE IS WITH THE FOLLOWING CODE: 1 FOR VERY SURE,2 F O R QUITE SURE, 3 F T 9 MODERATELY SURF,4 FOR S L I G H T L Y SURF,5 FOR NOT SURE 95. YOUR EXTREMITY SCORE 0 . 1 1 1 8 6 0 PERCENTILE YOUR CONFIDENCE SCORE 3.0670 PERCENTILE 55. PERSONALITY MEASURES INTER I^AL CONTROL - MEASURE OF HOW YOU P E R C F I V E YOUR D E C I S I O N AS HAVING ANY INFLUENCE ON THE OUTCOMES OF YOUR CHOICES. 6.00 PERCENTILE 85. YOUR SCORE NEW EXP E R_I FNCES MSAS'J RE - ME A SURES_ JjjE DEGREE TO WHICH YOU SEEK. V A P . I E T Y , NEW"SOCIAL ACQUAINTANCES AND E X P E R I E N C E S . YOUR SCORE 4. PERCENTILE 100.  S T O C K  P R I C E  W A G E R  -  •^3  

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