The social foundations of risk

Ulrich Beck's argument about risk society emphasises, among other things, the pervasiveness of risk. As a feature of the human condition in the contemporary, globalised, world that distinguishes the present from the past, risk is widespread across society and affects all social strata. While Beck has gestured towards the irregular distribution of contemporary risks, nonetheless he has suggested that traditional structural entities – class and wealth – no longer provide the key interpretive frameworks for the calculation of susceptibility. In short, the tentacles of risk are long and almost no one is out of reach. Yet, while the risk society thesis has generated a large theoretical literature, there is very little in the way of research that marries theorising to original data collection. This paper represents an attempt to address this gap by using empirical data to investigate whether risk is more textured than Beck's account suggests. Focusing on health as a domain of risk, the paper uses data from a national sample survey of the Australian electorate to investigate the extent to which social divisions structure perceptions of risk within the general population. The findings suggest that various aspects of social stratification, such as income, occupation and education, do indeed play a role in shaping perceptions of risk.

Modelling the intention to adopt cloud computing services : a transaction cost theory perspective

This paper uses transaction cost theory to study cloud computing adoption. A model is developed and tested with data from an Australian survey. According to the results, perceived vendor opportunism and perceived legislative uncertainty around cloud computing were significantly associated with perceived cloud computing security risk. There was also a significant negative relationship between perceived cloud computing security risk and the intention to adopt cloud services. This study also reports on adoption rates of cloud computing in terms of applications, as well as the types of services used.

Reason of state and a new notion of fortune : Historicising the risk society

Since the 1980s the concept of risk has produced a large and diverse volume of sociological research. Ulrich Beck’s groundbreaking risk society thesis provides a particularly engaging contribution, since it seems that nearly every sociological account of risk engages with this work. For Beck, we are living in second modernity – a new epoch that breaks with pre-modernity and industrial society due to the centrality, incalculability and reflexivity of globalised risk. While Beck’s theory is compelling, a reading of other theorists such as Foucault (2007[1978]) and Hacking (1975,1990) suggests that a difficulty with Beck’s work is that in attempting to explain what is novel about risk in contemporary times, he too quickly passes over the complexities and ruptures of historical change that impact on the history and contingency of risk. This paper begins by presenting a brief analysis of the present state of risk by introducing Beck’s historical narrative of risk from pre-modernity to the risk society; it then outlines the challenges with the “risk as epoch” argument by considering a range of literature, which suggests risk has a more complex history than proposed by Beck; and finally it highlights the value in examining strategies of statecraft in early modern Europe, specifically Machiavelli’s The Prince (2008[1513]) and Giovanni Botero’s political treatise, Della Ragion di Stato (1956[1589]) – as a means of more thoroughly understanding how our current concept of risk emerges. In doing so, this paper seeks to open up new trajectories in the historicisation of risk for other interested scholars.

Driven by distraction: Investigating the effects of anxiety on driving performance using the Attentional Control Theory

This study investigates the effects of trait anxiety on self-reported driving behaviours through its negative impacts on Central Executive functions. Following a self-report study that found trait anxiety to be significantly related to driving behaviours, the present study extended the predictions of Eysenck and Calvo’s Attentional Control Theory, proposing that anxiety affects driving behaviours, in particular driving lapses, through its impact across the Central Executive. Seventy-five Australian drivers participated in the study, completing the Parametric Go/No-Go and n-back tasks, as well as the State-Trait Anxiety Inventory and the Driving Behaviour Questionnaire. While both trait anxiety and processing efficiency of the Central Executive was found to significantly predict driving lapses, trait anxiety remained a strong predictor of driving lapses after processing efficiency was controlled for. It is concluded that while processing efficiency of the central Executive is a key determinant of driving lapses, another Central Executive function that is closer to the driving lapses in the trait anxiety – driving lapses relationship may be needed. Suggestions regarding how to improve future trait anxiety – driving behaviours research are discussed.

Institutional investors, risk/performance and corporate governance

Modern portfolio theory suggests that investors minimize risk for a given level of expected return by carefully choosing the proportions of various assets. This study sets out to determine the role of the institutional investor in monitoring risk and firm performance. Using a sample of Australian firms from 2006 to 2008, our empirical study shows a positive association between firm-specific risk, risk-management policy, and performance for firms with increasing institutional shareholdings. The study also finds that the significance of this association depends on the institutional investor's ability to influence management, which in turn depends on the size of ownership and whether the investee firm does not have potential business dealings with the investor. We also find that when firms are financially distressed, institutional investors engage in promoting short-term performance or exit rather than support long-term value creation. The results are robust while controlling the potential for endogeneity and using sensitivity tests to control for variants of performance and risk. These findings add to the growing body of literature examining institutional ownership and the importance of understanding the role of risk-management in the risk and return relation.

Understanding carers' intention for their child to walk to school : further application of the theory of reasoned action

One quarter of Australian children are overweight or obese (ABS, 2010), putting them at increased risk of physical and psychological health problems (Reilly et al., 2003). Overweight and obesity in childhood tends to persist into adulthood and is associated with premature death and morbidity (Reilly & Kelly, 2011). Increases in Australian children’s weight have coincided with declines in active transportation, such as walking, to school (Salmon et al., 2005). Investigating the factors which influence walking to school is therefore important, particularly since walking to school is a low cost and effective means of reducing excess weight (Rosenberg et al., 2006) that can be easily integrated into daily routine (Brophy et al., 2011). While research in this area has expanded (e.g., Brophy et al., 2011; Giles-Corti et al., 2010), it is largely atheoretical (exceptions Napier et al., 2011). This is an important gap from a social marketing perspective given the use of theory lies at the foundation of the framework (NSMC, 2006) and a continued lack of theory use is observed (Luca & Suggs, 2013). The aim of this paper is to empirically examine a widely adopted theory, the deconstructed Theory of Reasoned Action (TRA) (Fishbein & Azjen, 1975), to understand the relative importance of attitude and subjective norms in determining intentions to increase walk to school behaviour.

Predicting intentions and behaviours in populations with or at-risk of diabetes: A systematic review

Purpose To systematically review the Theory of Planned Behaviour studies predicting self-care intentions and behaviours in populations with and at-risk of diabetes. Methods A systematic review using six electronic databases was conducted in 2013. A standardised protocol was used for appraisal. Studies eligibility included a measure of behaviour for healthy eating, physical activity, glucose monitoring, medication use (ii) the TPB variables (iii) the TPB tested in populations with diabetes or at-risk. Results Sixteen studies were appraised for testing the utility of the TPB. Studies included cross-sectional (n=7); prospective (n=5) and randomised control trials (n=4). Intention (18% – 76%) was the most predictive construct for all behaviours. Explained variance for intentions were similar across cross-sectional (28 -76%); prospective (28 -73%); and RCT studies (18 - 63%). RCTs (18 - 43%) provided slightly stronger evidence for predicting behaviour. Conclusions Few studies tested predictability of the TPB in populations with or at-risk of diabetes. This review highlighted differences in the predictive utility of the TPB suggesting that the model is behaviour and population specific. Findings on key determinants of specific behaviours contribute to a better understanding of mechanisms of behaviour change and are useful in designing targeted behavioural interventions for different diabetes populations.

An extension of the continual reassessment method using decision theory

The primary goal of a phase I trial is to find the maximally tolerated dose (MTD) of a treatment. The MTD is usually defined in terms of a tolerable probability, q*, of toxicity. Our objective is to find the highest dose with toxicity risk that does not exceed q*, a criterion that is often desired in designing phase I trials. This criterion differs from that of finding the dose with toxicity risk closest to q*, that is used in methods such as the continual reassessment method. We use the theory of decision processes to find optimal sequential designs that maximize the expected number of patients within the trial allocated to the highest dose with toxicity not exceeding q*, among the doses under consideration. The proposed method is very general in the sense that criteria other than the one considered here can be optimized and that optimal dose assignment can be defined in terms of patients within or outside the trial. It includes as an important special case the continual reassessment method. Numerical study indicates the strategy compares favourably with other phase I designs.

An analysis of risk management disclosures: Australian evidence

- Purpose Communication of risk management practices are a critical component of good corporate governance. Research to date has been of little benefit in informing regulators internationally. This paper seeks to contribute to the literature by investigating how listed Australian companies in a setting where disclosures are explicitly required by the ASX corporate governance framework, disclose risk management (RM) information in the corporate governance statements within annual reports. - Design/methodology/approach To address our study’s research questions and related hypotheses, we examine the top 300 ASX-listed companies by market capitalisation at 30 June 2010. For these firms, we identify, code and categorise RM disclosures made in the annual reports according to the disclosure categories specified in Australian Stock Exchange Corporate Governance Principles and Recommendations (ASX CGPR). The derived data is then examined using a comprehensive approach comprising thematic content analysis and regression analysis. - Findings The results indicate widespread divergence in disclosure practices and low conformance with the Principle 7 of the ASX CGPR. This result suggests that companies are not disclosing all ‘material business risks’ possibly due to ignorance at the board level, or due to the intentional withholding of sensitive information from financial statement users. The findings also show mixed results across the factors expected to influence disclosure behaviour. Notably, the presence of a risk committee (RC) (in particular, a standalone RC) and technology committee (TC) are found to be associated with improved levels of disclosure. we do not find evidence that company risk measures (as proxied by equity beta and the market-to-book ratio) are significantly associated with greater levels of RM disclosure. Also, contrary to common findings in the disclosure literature, factors such as board independence and expertise, audit committee independence, and the usage of a Big-4 auditor do not seem to impact the level of RM disclosure in the Australian context. - Research limitation/implications The study is limited by the sample and study period selection as the RM disclosures of only the largest (top 300) ASX firms are examined for the fiscal year 2010. Thus, the finding may not be generalisable to smaller firms, or earlier/later years. Also, the findings may have limited applicability in other jurisdictions with different regulatory environments. - Practical implications The study’s findings suggest that insufficient attention has been applied to RM disclosures by listed companies in Australia. These results suggest that the RM disclosures practices observed in the Australian setting may not be meeting the objectives of regulators and the needs of stakeholders. - Originality/value Despite the importance of risk management communication, it is unclear whether disclosures in annual financial reports achieve this communication. The Australian setting provides an ideal environment to examine the nature and extent of risk management communication as the Australian Securities Exchange (ASX) has recommended risk management disclosures follow Principle 7 of its principle-based governance rules since 2007.

Stress and Resilience in Combat-Related PTSD: Integration of Psychological Theory and Biological Mechanisms

Post-traumatic stress disorder (PTSD) is a debilitating psychiatric disorder that has a major impact on the ability to function effectively in daily life. PTSD may develop as a response to exposure to an event or events perceived as potentially harmful or life-threatening. It has high prevalence rates in the community, especially among vulnerable groups such as military personnel or those in emergency services. Despite extensive research in this field, the underlying mechanisms of the disorder remain largely unknown. The identification of risk factors for PTSD has posed a particular challenge as there can be delays in onset of the disorder, and most people who are exposed to traumatic events will not meet diagnostic criteria for PTSD. With the advent of the Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM V), the classification for PTSD has changed from an anxiety disorder into the category of stress- and trauma-related disorders. This has the potential to refocus PTSD research on the nature of stress and the stress response relationship. This review focuses on some of the important findings from psychological and biological research based on early models of stress and resilience. Improving our understanding of PTSD by investigating both genetic and psychological risk and coping factors that influence stress response, as well as their interaction, may provide a basis for more effective and earlier intervention.

Human rights performance disclosure by companies having operations in high risk countries: Evidence from Australian mineral sector

The aim of this study is to explore whether Australian mineral companies operating in high human rights risk countries provide more human rights disclosures than companies operating in low risk countries. A content analysis instrument containing 88 specific human rights performance items derived from a number of international human rights guidelines has been developed to investigate the annual reports, social responsibility reports and corporate websites of the top 50 Australian mineral companies (2010/2011). The findings show that human rights performance disclosures by companies with operations in high human rights risk countries are significantly higher than companies with operations in the low risk countries. By disclosing extended human rights performance information, companies operating in high risk countries appear to ease community concerns about human rights violations. The finding is consistent with legitimacy theory which posits that organisations respond to community concerns in relation to particular social issues.

Essays on Risk and Return

Perhaps the most fundamental prediction of financial theory is that the expected returns on financial assets are determined by the amount of risk contained in their payoffs. Assets with a riskier payoff pattern should provide higher expected returns than assets that are otherwise similar but provide payoffs that contain less risk. Financial theory also predicts that not all types of risks should be compensated with higher expected returns. It is well-known that the asset-specific risk can be diversified away, whereas the systematic component of risk that affects all assets remains even in large portfolios. Thus, the asset-specific risk that the investor can easily get rid of by diversification should not lead to higher expected returns, and only the shared movement of individual asset returns – the sensitivity of these assets to a set of systematic risk factors – should matter for asset pricing. It is within this framework that this thesis is situated. The first essay proposes a new systematic risk factor, hypothesized to be correlated with changes in investor risk aversion, which manages to explain a large fraction of the return variation in the cross-section of stock returns. The second and third essays investigate the pricing of asset-specific risk, uncorrelated with commonly used risk factors, in the cross-section of stock returns. The three essays mentioned above use stock market data from the U.S. The fourth essay presents a new total return stock market index for the Finnish stock market beginning from the opening of the Helsinki Stock Exchange in 1912 and ending in 1969 when other total return indices become available. Because a total return stock market index for the period prior to 1970 has not been available before, academics and stock market participants have not known the historical return that stock market investors in Finland could have achieved on their investments. The new stock market index presented in essay 4 makes it possible, for the first time, to calculate the historical average return on the Finnish stock market and to conduct further studies that require long time-series of data.

Essays on Stock Option Compensation and the Role of Incentives and Risk (summary section only)

Managerial pay-for-performance sensitivity has increased rapidly around the world. Early empirical research showed that pay-for-performance sensitivity resulting from stock ownership and stock options appeared to be quite low during the 1970s and early 1980s in the U.S. However, recent empirical research from the U.S. shows an enormous increase in pay-for-performance sensitivity. The global trend has also reached Finland, where stock options have become a major ingredient of executive compensation. The fact that stock options seem to be an appealing form of remuneration from a theoretical point of view combined with the observation that the use of this compensation form has increased significantly during the recent years, implies that research on the dynamics of stock option compensation is highly relevant for the academic community, as well as for practitioners and regulators. The research questions of the thesis are analyzed in four separate essays. The first essay examines whether stock option compensation practices of Finnish firms are consistent with predictions from principal-agent theory. The second essay explores one of the major puzzles in the compensation literature by studying determinants of stock option contract design. In theory, optimal contract design should vary according to firm characteristics. However, in the U.S., variation in contract design seems to be surprisingly low, a phenomenon generally attributed to tax and accounting considerations. In Finland, however, firms are not subject to stringent contracting restrictions, and the variation in contract design tends, in fact, to be quite substantial. The third essay studies the impact of price- and risk incentives arising from stock option compensation on firm investment. In addition, the essay explores one of the most debated questions in the literature, in particular, the relation between incentives and firm performance. Finally, several strands of literature in both economics and corporate finance hypothesize that economic uncertainty is related to corporate decision-making. Previous research has shown that risk tends to slow down firm investment. In the fourth essay, it is hypothesized that firm risk slows down growth from a more universal perspective. Consistent with this view, it is shown that risk not only tends to slow down firm investment, but also employment growth. Moreover, the essay explores whether the nature of firms’ compensation policies, in particular, whether firms make use of stock option compensation, affects the relation between risk and firm growth. In summary, the four essays contribute to the current understanding of stock options as a form of equity incentives, and how incentives and risk affect corporate decision-making. By this, the thesis promotes the knowledge related to the modern theory of the firm.

Angel Investing in Finland: An Analysis Based on Agency Theory and the Incomplete Contracting Theory

Wealthy individuals - business angels who invest a share of their net worth in entrepreneurial ventures - form an essential part of an informal venture capital market that can secure funding for entrepreneurial ventures. In Finland, business angels represent an untapped pool of capital that can contribute to fostering entrepreneurial development. In addition, business angels can bridge knowledge gaps in new business ventures by means of making their human capital available. This study has two objectives. The first is to gain an understanding of the characteristics and investment behaviour of Finnish business angels. The strongest focus here is on the due diligence procedures and their involvement post investment. The second objective is to assess whether agency theory and the incomplete contacting theory are useful theoretical lenses in the arena of business angels. To achieve the second objective, this study investigates i) how risk is mitigated in the investment process, ii) how uncertainty influences the comprehensiveness of due diligence as well as iii) how control is allocated post investment. Research hypotheses are derived from assumptions underlying agency theory and the incomplete contacting theory. The data for this study comprise interviews with 53 business angels. In terms of sample size this is the largest on Finnish business angels. The research hypotheses in this study are tested using regression analysis. This study suggests that the Finnish informal venture capital market appears to be comprised of a limited number of business angels whose style of investing much resembles their formal counterparts’. Much focus is placed on managing risks prior to making the investment by strong selectiveness and by a relatively comprehensive due diligence. The involvement is rarely on a day-to-day basis and many business angels seem to see board membership as a more suitable alternative than involvement in the operations of an entrepreneurial venture. The uncertainty involved does not seem to drive an increase in due diligence. On the contrary, it would appear that due diligence is more rigorous in safer later stage investments and when the business angels have considerable previous experience as investors. Finnish business angels’ involvement post investment is best explained by their degree of ownership in the entrepreneurial venture. It seems that when investors feel they are sufficiently rewarded, in terms of an adequate equity stake, they are willing to involve themselves actively in their investments. The lack of support for a relationship between increased uncertainty and the comprehensiveness of due diligence may partly be explained by an increasing trend towards portfolio diversification. This is triggered by a taxation system that favours investments through investment companies rather than direct investments. Many business angels appear to have substituted a specialization strategy that builds on reducing uncertainty for a diversification strategy that builds on reducing firm specific (idiosyncratic) risk by holding shares in ventures whose returns are not expected to exhibit a strong positive correlation.

Essays in revealed preference theory and behavioral economics

Time, risk, and attention are all integral to economic decision making. The aim of this work is to understand those key components of decision making using a variety of approaches: providing axiomatic characterizations to investigate time discounting, generating measures of visual attention to infer consumers' intentions, and examining data from unique field settings.

Chapter 2, co-authored with Federico Echenique and Kota Saito, presents the first revealed-preference characterizations of exponentially-discounted utility model and its generalizations. My characterizations provide non-parametric revealed-preference tests. I apply the tests to data from a recent experiment, and find that the axiomatization delivers new insights on a dataset that had been analyzed by traditional parametric methods.

Chapter 3, co-authored with Min Jeong Kang and Colin Camerer, investigates whether "pre-choice" measures of visual attention improve in prediction of consumers' purchase intentions. We measure participants' visual attention using eyetracking or mousetracking while they make hypothetical as well as real purchase decisions. I find that different patterns of visual attention are associated with hypothetical and real decisions. I then demonstrate that including information on visual attention improves prediction of purchase decisions when attention is measured with mousetracking.

Chapter 4 investigates individuals' attitudes towards risk in a high-stakes environment using data from a TV game show, Jeopardy!. I first quantify players' subjective beliefs about answering questions correctly. Using those beliefs in estimation, I find that the representative player is risk averse. I then find that trailing players tend to wager more than "folk" strategies that are known among the community of contestants and fans, and this tendency is related to their confidence. I also find gender differences: male players take more risk than female players, and even more so when they are competing against two other male players.

Chapter 5, co-authored with Colin Camerer, investigates the dynamics of the favorite-longshot bias (FLB) using data on horse race betting from an online exchange that allows bettors to trade "in-play." I find that probabilistic forecasts implied by market prices before start of the races are well-calibrated, but the degree of FLB increases significantly as the events approach toward the end.