Cross-Cultural Differences in Financial Risk Preference between Chinese and American College Students

Abstract

Generally, people can easily get an impression that Chinese people are very conservative in making monetary decisions. Empirical evidence shows that China’s saving rate is one of the highest in the world. However, are Chinese people really more risk-averse than Americans? Contradicted to the traditional stereotype, the Cushion Hypothesis suggests that people in collectivist culture, such as China, are likely to be more risk-seeking in making financial decisions. Because the closer social networks in such society serve as the “cushions” if they fall. The goal of this thesis is to investigate whether there are cross-cultural differences in financial risk preference between Chinese and American college students. If so, what role does culture play in influencing people’s risk preference? By using basic statistical tools, this study found that Chinese students were significantly more collectivistic and risk-seeking than American students and there was a positive relationship between collectivism and risk-seeking preference.