Towards a typology of risk preference: Four risk profiles describe two-thirds of individuals in a large sample of the U.S. population

• Published in: Journal of risk and uncertainty Vol. 66; no. 1; pp. 1 - 17
• Main Authors: Frey, Renato, Duncan, Shannon M., Weber, Elke U.
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-02-2023; Springer Nature B.V
• Subjects: Behavioral sciences; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Environmental Economics; Individual differences; Measurement; Microeconomics; Operations Research/Decision Theory; Preferences; Risk preferences; Risk taking; United States > US; Risk preference; Psychometric modeling; DOSPERT; C110; Bayesian latent profile analyses; C380; D810; C630
• ISSN: 0895-5646; 1573-0476
• DOI: 10.1007/s11166-022-09398-5

It has been a longstanding goal of the behavioral sciences to measure and model people’s risk preferences. In this article, we adopt a novel theoretical perspective of doing so and test to what extent specific types of individuals share similar
risk profiles
(i.e., configurations of multidimensional risk preferences). To this end, we analyzed data of a U.S. sample (N = 3,123) in a comprehensive and rigorous way, resulting in a twofold contribution. First, based on data from the Domain-Specific Risk-Taking scale (DOSPERT) and using a cross-validation procedure, we established a multidimensional trait space including general
and
domain-specific dimensions of risk preference. Second, we employed model-based cluster analyses in this multidimensional trait space, finding that 66% of participants can be described well with four basic risk profiles. In sum, the typological perspective proposed in this article has important implications for current theories of risk preference and the measurement of individual differences therein.