When the rules of making money change, people quickly change how much risk they take
People's taste for risk is not fixed. In a paid experiment where money grew in two different ways, participants shifted their risk-taking to nearly the level that grows wealth fastest over time.
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Why it matters
Banks, insurers and economists often treat your appetite for risk as a fixed personal trait, like height. This study suggests it bends to the situation instead. The idea behind it is simple: a gamble that is smart when losses can be recovered is foolish when one bad loss wipes you out, and people seem to sense the difference. Still, this was a short laboratory task with modest sums, so real financial life, with debts and families and jobs, may work differently.
Who's behind it: Benjamin Skjold, Oliver James Hulme, Ole Peters and colleagues, London Mathematical Laboratory, with collaborators in Denmark and the UK.
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