The effect of state and trait power on financial risk taking: The mediating and moderating roles of focus on rewards versus threats

Abstract

Correlates of power remain understudied in the context of financial risk taking. This project aimed to investigate the role of focus on rewards versus threats in explaining the relationship between power and risky financial choices across three studies (N₁ = 326, N₂ = 397, N₃ = 223). Study 1 analyzed the mediating role of focus on rewards versus threats and financial risk perception in the relationship between sense of power and risky financial choices. The results indicated that a greater sense of power translates into a greater general focus on rewards, which, in turn, leads to lower investment and gambling risk perception and results in riskier financial choices. Study 2 investigated the role of states of power and lack of power in explaining people's financial decisions as well as their influence on people's situational focus on rewards versus threats. We demonstrated that the state of power plays a significant role in explaining the situational focus on rewards versus threats, situational risk perception, and risky investment and gambling choices. Study 3 tested the single and joint moderating effects of the state of focus on rewards versus threats and the state of power in explaining the positive relationship between the sense of power and risky investing and gambling choices. In line with our main hypothesis, the obtained results showed a significant three-way interaction among sense of power, state of power, and state of focus on rewards versus threats, both in terms of investment and gambling choices.