Empowering People through Behavioral Science
Purpose in Goal Pursuit Purpose & Well-Being

Risky Business: How being reminded of past success encourages risk taking

By Brittany Christian, Janina Steinmetz

 

Despite having the ability to imagine what lies ahead, we cannot know exactly what the future will bring. As a result, most of our biggest decisions in life involve a reasonable degree of uncertainty. While we consider big life changes because they hold the possibility of something greater than what we have now, there is always a chance that the grass is not actually greener on the other side. Generally speaking, people have a tendency to be risk averse. Often studied in terms of financial gains and losses, people prefer a ‘sure thing’ to the possibility of a greater reward. Of course, we don’t always play it safe. There are times when we go out on a limb and hope for the best. But what factors shape our decisions when playing it safe is pitted against more risky business?

Recent research by Elliot Ludvig from the University of Warwick in collaboration with Christopher Madan and Marcia Spetch from the University of Alberta has begun to explore the factors that influence risk-taking behavior. Building off of prior research that has suggested we often call on our own memories about the consequences of past risky decisions, the researches predicted that reminding participants of past wins would make them more likely to take the risky rather than the safe option. In other words, if you are reminded of a time where you took a gamble and it paid off, then you may be more likely to act in a more high-risk way. To test their hypothesis, the researchers employed a basic gambling task where participants were repeatedly asked to make decisions about whether they would take a safe option (40 points) or a risky option (50/50 chance of either winning 20 or 60 points). Left to their own devices, participants tended to be risk-averse when playing this game, only choosing the risky option 40% of the time. However, when participants were reminded about the times they had previously faired well when making a risky decision (through associative priming), they became considerably more risk seeking, going for the uncertain option 55% of the time.

Image ©: Images Money 2011

What this research suggests is that typically the negative possible outcomes, or times when a risky decision has gone wrong, seem to loom larger in our minds when we are contemplating another high-risk situation. However, by making the possible positive outcomes more salient, we may be more willing to take a gamble we’d otherwise avoid. These findings shed light on previous work suggesting that we sample our own memories when considering risky decisions and show that if positive, rather than negative, outcomes are more accessible in our minds, it may lead us down a more risky road.

While uncertainty is generally regarded as unpleasant and to be avoided, there are times when it can be used to motivate us in our goal pursuits. Recent research by members at New Paths to Purpose have shown that when the reward of completing a task is uncertain, the suspense of knowing what the reward is will increase participants motivation to complete the task. So while making decisions between certain and uncertain outcomes generally falls in the favor of what is known, when a reward is to be received upon task completion, the suspense of not knowing may be enough to motivate us. Taken together, it is important to note that uncertainty and risky decisions are not always bad. It is just worth being aware of how uncertainty may shape our motivation and judgments. In our own lives, if decisions are made by reflecting on other times we have taken a risk and it has gone well, we are likely to be less risk-averse than when reflecting on times where we took a risk and it ended poorly. Considering whether the past situations you reference when trying to make a new decision ended well (or poorly) may help you decipher why you feel inclined to engage (or avoid) risky business. 

 

Brittany Christian is a Research Professional (post-doctoral fellow) in the NPP Network, based at the Center for Decision Research at Chicago Booth.
Janina Steinmetz is a Research Professional (post-doctoral fellow) in the NPP Network, based at the Center for Decision Research at Chicago Booth.

Associated Project Theme: Purpose in Goal Pursuit Purpose & Well-Being

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