Risky moves that just might just pay off
Nathan Kettlewell is fascinated by risk – not in a should-I-put-it-all-on-red kind of way, but in his desire to explore what makes some people more open to taking risks while others are more cautious.
A UTS Chancellor’s Postdoctoral Fellow in the Economics Discipline of the UTS Business School, Kettlewell is undertaking a program of research that seeks to understand what risk preferences are, how they’re formed, and the impact of those preferences on economic and social outcomes.
In the first stage of his research, he will test the theoretical foundations of risky choice by comparing existing approaches to measuring risk preference and looking for correlation between the results. The outcomes will shed light on how people make choices that involve risk.
“I want to understand what is the right model for predicting how people make decisions in risky situations,” he says.
This aspect of the work is based on expected utility theory, an economic model that seeks to understand people’s choices based on both the costs and benefits of any given action, as well as on the variance of expected returns.
In the latter two stages of his research, Kettlewell will try to determine the causal factors that underpin risk preference, such as genes or environment, and investigate whether those causal factors actually impact on individual outcomes.
“I think those two things are strongly linked,” he says.
The research will use a mix of experimental and survey data, as well as advanced statistical models to isolate the independent effects of one variable on another. Specific methodologies include linear and mixed effects regression, structural estimation using maximum likelihood and Bayesian updating approaches and twin decomposition models.
Prospective end users of the work include psychologists, who may gain new insights into their patients; companies seeking to predict consumer demand; recruiters needing to screen prospective employees; and parents and educators responsible for teaching young people new skills.
Importantly, the outcomes will also enable governments to deliver policies that help individuals exploit or overcome their risk preferences for economic or social gain.
“If you understand the channels that drive economic and social disadvantage, then you can think about the ways you might use policy to address the causes of those things and also work through the consequences,” Kettlewell says.