The effect of state and trait power on financial risk-taking: The mediating and moderating roles of optimism

Abstract

The research aimed to further develop knowledge on the mechanisms that enhance risk-taking propensities among powerful people. Three studies (N1 = 328, N2 = 388, N3 = 267) investigated the role of optimism in the relationship between sense of power and financial risk-taking, controlling for the state of power. Study 1, correlational, analyzed whether the relationship between sense of power and risky financial choices is serially mediated by general optimism and financial risk perception. The results confirmed the initial hypotheses. The second, experimental, study investigated the role of states of power and lack of power in explaining people’s financial decisions as well as their influence on people’s situational optimism and perception of risk. The results indicated that people in a state of power differed from people lacking power in terms of their situational optimism and the riskiness of their financial choices; however, they did not differ in terms of risk perception. People having power were more optimistic, invested more, and made riskier gambling choices than those in control conditions and those who lacked power. The third, experimental, study investigated the single and joint moderating effects of the states of optimism and power in explaining the positive relationship between sense of power and risky investing and gambling choices. In line with our expectations, the results of the study showed that the states of power and optimism jointly moderated the positive relationship between the sense of power and risky financial choices. This effect was the strongest under the state of power and optimism conditions and the weakest when lack of power and pessimism were induced; thus boundary conditions for previously observed mechanisms were identified. The results of the research shed light on the way optimism mediates and moderates the effect of power on financial risk-taking and thus contributes to theoretical knowledge of the consequences of power.

The effect of state and trait power on financial risk taking: The mediating and moderating roles of focus on rewards versus threats

“…To achieve this, we test a model in which the state of focus on rewards versus threats and the state of power jointly moderate the link between sense of power and risk propensity. We expect a moderating role of state of power as previous studies have shown that the effects of sense of power and state of power are usually consistent, yet they might interact with each other (Rucker et al, 2012;Sek sci nska, Rudzinska-Wojciechowska, & Jaworska, 2022;Sek sci nska, Rudzinska-Wojciechowska, & Kusev, 2022).…”

“…Moreover, the effects of state of power and sense of power are usually consistent (e.g., Anderson & Berdahl, 2002; Anderson & Galinsky, 2006; Cote et al, 2011; for a review, see Rucker et al, 2012). However, some studies have found an interaction effect between state of power and sense of power (Chen et al, 2009; Sekścińska & Rudzinska‐Wojciechowska, 2021; Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022; Strelan et al, 2014). For this reason, it is crucial to consider both components of power.…”

“…Research has shown that people in a state of high power tend to take more risks than people in a state of low power, and this is observed across multiple domains of risk, including financial risk taking (Galinsky et al, 2014; Kim et al, 2018; Maner et al, 2007). Studies show that experimentally inducing state of power results in individuals taking more gambling and investment risks than when lack of power is induced (Galinsky et al, 2014; Sekścińska & Rudzinska‐Wojciechowska, 2021; Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022), not only in the case of individual financial choices but also in the case of corporate ones—a positive link between the power held by a CEO and excessive risk taking on the part of the company has also been demonstrated (Lewellyn & Muller‐Kahle, 2012). Sense of power is also positively linked to the propensity to take investment and gambling risks (Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022; Sekścińska, Rudzinska‐Wojciechowska, & Kusev, 2022).…”

“…These findings have also been supported by a neuropsychological study that showed that priming people with state of high social power increased activity in the left prefrontal cortex, which was previously associated with focusing on rewards (approach system) (Boksem et al, 2012). Moreover, several similarities between people with high state of power and sense of power and people who focus on rewards (promotion focus) have been found, such as overestimation of control (Fast et al, 2012; Langens, 2007), higher levels of optimism (Anderson & Galinsky, 2006; Fast et al, 2009; Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022), and greater propensity to take risks (Anderson & Galinsky, 2006; Higgins, 2002).…”

“…Studies show that experimentally inducing state of power results in individuals taking more gambling and investment risks than when lack of power is induced (Galinsky et al, 2014; Sekścińska & Rudzinska‐Wojciechowska, 2021; Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022), not only in the case of individual financial choices but also in the case of corporate ones—a positive link between the power held by a CEO and excessive risk taking on the part of the company has also been demonstrated (Lewellyn & Muller‐Kahle, 2012). Sense of power is also positively linked to the propensity to take investment and gambling risks (Sekścińska, Rudzinska‐Wojciechowska, & Jaworska, 2022; Sekścińska, Rudzinska‐Wojciechowska, & Kusev, 2022). Moreover, it enhances overconfidence in decision‐making (Fulfer, 2018) and reduces loss aversion (Inesi, 2010).…”