Americans have lower risk appetite than Chinese

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Don’t you think that Asians tend to be risk averse, preferring safe options, whereas Americans are risk takers, going for high risk – high return options? This is the common stereotype prevalent both in Western societies and in Asian societies, that Asians are timid risk averse people whereas Westerners are bold risk takers.

When researchers decided to test whether this is actually the case, they consistently found the opposite! For example, when presented with the same investment options that provide different returns with different probabilities (similar to financial instruments like stocks and bonds), people from China perceived the investment options as being 20% less risky than Americans, and were willing to pay 50% more than Americans to buy the investment options. Contrary to prevalent stereotypes, it is the Chinese who are bold and the Americans who are timid.

The difference between risk taking of Americans and Chinese was largest for entrepreneurial investments – those that have a big chance of failing but also give a big return in case of success. Chinese valued these high-risk high-return investments nearly twice as much as did Americans.

U.S.-China differences  in risk seeking are not just limited to investment options but are ingrained in cultural values. A careful study of large collections of Chinese and American proverbs found that Chinese proverbs were more likely to encourage risk taking than American proverbs. For example, an ancient Chinese proverb says, “Pearls don’t lie on the seashore. If you want one, you must dive for it,” encouraging risk taking. A common British / American proverb goes, “A bird in the hand is worth two in the bush,” encouraging risk aversion.

Moral of the story: If you are trying to sell investment products to Asians, providing more high-risk high-return options would excite them. If you are trying to sell investment products to Americans, providing more moderate-risk moderate-return options would be advisable.


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