Solely My Own Work and Research Proposal

In this case, in order to verify the theories discussed above, five experiments were performed on 72 corporate financial managers with significant experience in the field. The following experiments were conducted: framing, profits and losses, profits and expenditures, revenues and costs, profits and costs.

The main purpose of all these experiments was to analyze these managers' risk taking behavior when dealing with different forms of financial data. The experiments consisted in choosing between two competing capital investment alternatives. One of the alternatives represented a risky option, while the other alternative represented a certain or a less risky option. The managers subjected to the experiment were supposed to select one of the alternatives and to rate it on a five point preference scale.

The first experiment was the Framing, and was based on the classic lives saved, lives lost scenario, proposed by Tversky and Kahneman. In this experiment, one group of managers was exposed to the gain, or save frame, and the other group was exposed to the loss frame. The economic conditions of the experiment consisted in expected loss of $600,000 for the next quarter. In this case, the results revealed that the framing effects supported the Prospect Theory. Also, it seems that "artificially changing the frame of the decision problem resulted in a change in the financial managers' decisions, even though the alternatives were essentially identical in both groups.Risk avoiding tendencies were observed when alternatives were framed as gains, while risk taking occurred when managers were required to choose between alternatives that involved financial losses" (Sullivan, 1997).

The other experiments presented similar results. All these experiments indicated that corporate managers tend to avoid taking risks when making decisions. The study also concluded that managers will generally tend to avoid taking risks in most financial contexts and conditions, different from the ones presented in the study.

In my opinion, this experiment and its study are quite useful for understanding individuals' choices in the decision making process. The results of the study definitely bring a little light in understanding the behavior of such individuals. However, it seems to me that these experiments may not have been complex enough. I think that the situations subjected to the experiment were too vague, too general, and that the alternatives were not complex. Also, my opinion is that one must not generalize these results, as I think that they may not apply to a large segment of individuals involved in decision making processes and risk management, in different fields of activity.

Reference list:

1. Sullivan, Kathryn (1997). Corporate Managers' Risky Behavior: Risk Taking or Avoiding? Journal of Financial and Strategic Decisions. Vol. 10, No. 3. Retrieved September 27, 2008 from http://www.studyfinance.com/jfsd/pdffiles/v10n3/sullivan.pdf......