Individual Risk Preference And Financial Decision-making Under Scareity

It is difficult for people to settle for the status quo for a long time,whether it is money,time or other resources,there will always be a desire for more demand due to scarcity.Poverty is still one of the pressing issues facing today’s society.In recent years,the government has adopted many relief policies and poverty alleviation projects that benefit the people in order to eliminate poverty in an all-round way.However,poor people often make decisions that make them poorer,thus trapping them in a cycle of poverty.Taking scarcity as a starting point,we study how scarcity affects individuals’ risk appetite and decision-making behavior,and explore the mechanism of poverty generation and persistence.In this paper,weconducted two experimental surveys and a questionnaire survey,in which participants were divided into scarcity group and wealth group.Combined with empirical analysis,the paper explored the mechanism of scarcity affecting individual risk preference through the design of "investment"project in the questionnaire survey.We find that scarcity affects individuals’ risk preference by causing their anxiety in short-term decision making,and scarcity causes more loss of cognitive broadband in decision making.We extend this conclusion to the stock market to explain why retail investors are more likely to suffer losses in financial decisions compared with institutional investors.In the long-term decision-making,the investment decision of the group with low monthly savings and the group with high monthly savings is based on income and savings respectively,which provides suggestions for the financial decision-making of the fund investment investors.Meanwhile,the research conclusion also believes that the poor are more likely to fall into the "gambler’s fallacy" due to the lack of liquidity in decision-making,and it is difficult to get rid of poverty.We conclude with policy recommendations aimed at helping poor people escape the cycle of poverty.