Change in risk-taking behavior at the individual level - Time perspective and money illusion effect
Description
Knowing the pattern of changes in risk preferences is important for studies of decision-making in financial choices. Moreover, relating it to Money illusion, which occupies an important position in variations of individuals’ risk preferences, might help to shape healthier consumers' portfolios. The aim of the research was to explore the relationship between people’s Time Perspectives and their differences in financial risk preferences and Money Illusion. The results of the study 1 (N1 = 108) revealed that, when individuals face forecasting information, Present Hedonistic and Future TP explain risky financial choices and Money Illusion. Additionally, only under inflation, people with a higher level of Past positive TP tend to prefer risky investments over safe investments. The results of study 2 (N2 = 105) showed that, when individuals face historical data, Past negative, Present Hedonistic and Present fatalistic TP play a role in explaining risky financial choices and Money illusion. Moreover, our results supported both studies that argued opposite effects of Money Illusion, which is about the changes in the individual's risk preferences; One study shows that inflation arouses an individual's risk aversion, while other studies show that inflation arouses an individual's risk-seeking. Our results show that the degree of individuals’ risk-seeking increased along with the score of the Present fatalistic TP, while the degree of individuals’ risk aversion increased along with the score of the Past negative TP. That is, whether people became risk-averse or risk-seeking along with inflation rate is depending on the profile of their Time Perspective.