Are Public Financial Managers Wired for Risk-Aversion?

Abstract

This research examines government finance professionals’ through a neuroscientific lens. Building on a Konorskian pattern of behavior, we develop a risk-taking model based on the neurobiology of four motivational states, i.e., prediction of reward (hope), prediction of aversive events (fear), omission of reward (frustration) and omission of aversive events (relief), based on reward or punishment sensitivity. It is posited herein that some financial managers are neurobiologically inclined to engage in risk-averse behaviors because they are motivated by fear of disrupting the status quo and seek relief by avoiding punishment. Other financial managers are neurobiologically inclined to engage in risk-seeking behaviors because they are motivated by hope for reward prospects and continue to engage in risky decisions despite frustrations of reward omission. in both cases, risk-taking behavior is learned based on cultural antecedences, and over time government financial managers’ risk tolerance becomes ‘hardwired’ neurologically, given their particular organizational environment.