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Are Public Managers Wired for Risk Aversion?

PFM, Vol. 20 No. 1, (2021)

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), omis-sion 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 en-gage 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 en-gage in risk-seeking behaviors because they are motivated by hope for reward prospects and con-tinue 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 environ-ment.
Keywords: Public finance, Behavioral finance, Neurofinance, Prospect theory, Neurobiology of motivation, Learning systems.

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