Working Hard for Money Decreases Risk Tolerance

This research examines how the effort that consumers exert to earn money affects their risk tolerance. We theorize and find that working harder — that is, more effortful earning — increases perceived ownership and valuation of earnings, and thus aversion to losing them, resulting in lower risk tolerance, even when risk is associated with better expected outcomes. Documenting this causal negative effort–risk relationship is important because it (1) runs contrary to consumers’ lay beliefs and population-level analysis which conversely suggest a positive effort–risk correlation (i.e., a Simpson’s paradox, Experiment 2), (2) expands understanding of how the way in which people acquire money affects risk tolerance beyond classic research on windfall gains (i.e., unanticipated rewards) and house money (i.e., unrealized gains), and hence (3) reveals a unique mechanism of perceived ownership that drives this negative causal relationship. Leveraging this unique mechanism, we further show that this negative effort–risk relationship can be attenuated by changing the currency of the money that consumers earn to be one that consumers have low ownership over (e.g., Bitcoin for non-crypto users).