Let’s Get Risky

Birds of a feather take risks together!

This is Sandra Tsing Loh with the Loh Down on Science.

You’re finally making enough money to invest. But should you buy relatively safe bonds or riskier index funds? What’s everyone else buying? And how do their choices affect yours?

Wataru Toyokawa and team from the University of Konstanz in Germany wondered. They had nearly six hundred participants play slot machines. For each round, players got to CHOOSE between two slot machines: One had a consistent but low payout, like bonds. The other had a risky, but on average, higher payout, like index funds. Some participants were placed in groups and could see which machines others chose. 

Results? Seeing their peers’ choices increased their chances of picking the riskier machine – even though most people tend to avoid risk!

The researchers concluded that people make better decisions when they learn from others. So maybe being a sheeple ISN’T so bad.

But remember: luck never gives, it only lends! 

Reference: Toyokawa, W., & Gaissmaier, W. (2022). Conformist social learning leads to self-organised prevention against adverse bias in risky decision making. ELife, 11. https://doi.org/10.7554/elife.75308