EFFECTS OF COGNITIVE APPRAISAL PATTERN ON PROBABILITY WEIGHING FUNCTION AND RISK BEHAVIOR BETWEEN GENDERS

1.INTRODUCTIONGender differences in propensity to take risk has been widely studied and documented in the literature (Byrnes, Miller, & Schafer, 1999; Eckel & Grossman, 2008; Rachel & Gneezy, 2009). The majority of the results pointed to the finding that females were less willing to take risk than males in both abstract experimental and contextual studies. Recent works have begun to study the cognitive underpinnings of the differences in risk perception and evaluation behaviors. Weber, Blais, and Betz (2002) found that males displayed higher likelihood to engage in risky activities than females, Holtgrave and Weber (1993) and Slovic, Fischhoff, and Lichtenstein (2000) proposed that psychological risk dimensions such as dread, lack of knowledge and control over a situation contributed to risk perception. This caused females to assign higher probability on a risky prospect than males (Eriksson & Simpson, 2010; Fehr-Duda, De Gennaro, & Schubert, 2006). If psychological risk dimensions could influence the evaluation of probability, one may mitigate or reverse the misperception of probability by influencing the perceptions to the said risk dimensions when faced with a risky prospect. The present paper attempts to explore this possibility.The tendency to overweigh probability of losing and shun risky prospects has been shown to have far reaching consequences to the women's future financial well being, choice of occupations and income distribution gap between genders. In the study by Niederle and Vesterlund (2007), women were found to prefer non-competitive compensation scheme compared to men who preferred more competitive environment such as tournament competition. This was because men tend to be more optimistic about the likely consequences of a risky situation compared to women. Women were also found to be less likely to compete and secure a lucrative job. The low representation of women in the highest paid executive positions in the corporate world is the main concern of income distribution gap between genders (Bertrand & Hallock, 2001). In financial decision, women were found to be more conservative and risk averse than men. In a series of study on the effect of genders differences in risk aversion on investment decision, John Watson and Mc Naughton (2007), Sunden and Surette (1998), Olsen and Cox (2001) and Watson and Robinson (2003) found that lower risk tolerance among women affected the choice of investment decision and returns.In a recent literature on gender differences on risk, Rachel and Gneezy (2009) highlighted the emotional factors may drive women to experience stronger reactions to winning or losing, and the reason behind differences in risk tolerance between genders. Women were more sensitive to emotion and experience more intense nervousness than men This instinctive and intuitive reaction to risk caused women to be more likely to experience fear in losing relative to men (Lerner, Gonzalez, Deborah & Baruch, 2003). In an empirical test on the effect of emotion on probability evaluation, Bingley and Eriksson (2001) found that women expressed stronger emotional reactions to winning and losing a lottery than men. The negative feeling of fear of losing discouraged women to enter a lottery game, but positive feeling of gaining did not have any effect on decision. Fehr-Duda et al. (2006) found that women tend to overreact to small probability, which caused them to be more risk seeking in winning lottery and risk averse in losing lottery. Women were also found to be more sensitive to probability, while men were more concern about outcome (Harris, Jenkins, & Glaser, 2006; Levy & Baron, 2005). Sensitivity to emotion can be exploited by providing information that can influence appraisal pattern relevant to a risky situation. For example, situation that induces emotion fear is appraised as highly uncontrollable and uncertain, which causes risk aversion (Lerner & Keltner, 2000) (The appraisal patterns will be explained in the next section). …