Cryptocurrency encourages financial risk-taking, especially in poorer individuals

Exposure to information about cryptocurrency increases the likelihood of risk-taking behaviour in other investments, finds new research from UCD Michael Smurfit Graduate Business School. This effect is stronger for those with low financial well-being.

W. Yuna Yang, Assistant Professor of Marketing at UCD Smurfit School, alongside colleagues from UCD Smurfit School and the University of Oxford, explored the impact of cryptocurrency on decision-making using three studies.

In study one, participants either read an article about cryptocurrency or a telescope. The cryptocurrency article described what it is, how it works, and its benefits over traditional currency. In a word fragment completion task, those who read the cryptocurrency article were more likely to complete ‘_uck’ as ‘luck’.

In study two, participants answered questions on cryptocurrency and financial behaviour. Those who answered cryptocurrency questions first, designed to bring cryptocurrency to the forefront of their mind, were more likely to exhibit a preference for riskier financial behaviour in investment decisions unrelated to cryptocurrency.

Also, those with lower financial well-being were significantly more likely to associate cryptocurrency with luck and exhibit a preference for riskier behaviour.

Study three measured the number of news articles published daily related to cryptocurrency and real market demands for riskier stocks and bonds, for the last ten years. A higher daily volume of cryptocurrency-related articles is positively associated with greater junk bond and risky stock demand, a sign that investors are more willing to take financial risks.

“We show that information about a certain investment option can shape risk preference for other investment options, particularly for those under low subjective financial well-being. This is because such consumers are motivated to perceive cryptocurrency as a lucky investment,” says Prof. Yang.

This research adds to our understanding of how cryptocurrency can influence consumer decision-making, consequently impacting financial well-being.

These findings will be published in the journal Advances in Consumer Research later this year.