Variable risk preferences and the focus of attention

Empirical investigations of decision making indicate that the level of individual or organizational risk taking is responsive to a risk taker's changing fortune. Several nonstationary random-walk models of risk taking are developed to describe this phenomenon. The models portray a risk taker's history as the cumulated realizations of a series of independent draws from a normal probability distribution of possible outcomes. This performance distribution is assumed to have an unchanging mean and a variance (risk) that changes. The changes are seen as determined by (a) a focus of attention on 1 of 2 reference points (an adaptive aspiration for resources and the survival point) and (b) the relation between current resources and the focal point. The models are elaborated by examining the impact of adaptive aspirations and attention focus on risk taking over time in a cohort of risk takers and in a renewing population of risk takers.