Asymmetries in risk preferences and risk behavior between public and private sector employees: Experimental evidence on sector-specific probability discounting

Public sector employees are often stigmatized in public opinion: Even though they are entrusted with the creation and maintenance of public goods and services, reports on public opinion show that they are often perceived as... [ view full abstract ]

Public sector employees are often stigmatized in public opinion: Even though they are entrusted with the creation and maintenance of public goods and services, reports on public opinion show that they are often perceived as inefficient and irrationally risk-averse – in contrast to private sector employees. This creates a large number of problems for public organizations ranging from practical challenges such as difficulties in attracting employees to fundamental questions regarding the legitimacy of public organizations as a whole.

In this study, we explore whether public and private sector employees actually differ from each other in an economic professional context. Are public sector employees indeed more risk-averse than private employees? And if so, are individual character traits predictors of actual risk behavior when employees are confronted with economic choices?

We conduct a situational framing experiment with both public sector (N = 82) and private sector employees (N = 318) measuring individual character traits in respect to risk propensity and impulsivity. Furthermore, participants were asked to complete a probability discounting questionnaire where they had to make a number of financial decisions in a professional context (i.e. for their firm or for their public organization, respectively). The probability discounting questionnaire involved choice tasks between smaller, secure monetary rewards against larger but probabilistic future rewards. These choice tasks varied systematically in order to hyperbolically estimate discounting rates for each individual based on the points of indifference between each choice task.

Results reveal significant effects of risk propensity but not of impulsivity on probability discounting behavior, with significant differences in these risk preferences between public and private sector employees. Public sector employees are more risk-affine. Canonic correlation analysis and multivariate regression analysis show that personal risk preferences translate very dissimilarly into professional economic risk behavior for both test groups.

We conclude that, first, common stereotyping toward public sector employees’ risk behavior represents more than an urban legend since we indeed find sector-specific asymmetries. Second, while these differences might inhibit co-production efficiency in cross-sectoral teams, both risk-averse and risk-affine individuals can foster cross-sectoral partnership excellence.