Celebrities vs Investors, who is more risk-averse?

Who is more likely to achieve success: risk-takers or risk-averse people, and who are more risk-takers, celebrities or investors? According to many different resources, celebrities tend to exhibit higher levels of risk-taking when compared to many investors. The higher the age of the population, the more risk-averse they become, and it is understandable. Let’s examine who is more risk-averse between celebrity decision-makers and traditional investors through some empirical evidence. Our findings reveal that celebrities often leverage their status to absorb strategic risks while investors take risks according to sentiment and systemic factors.

The risk paradox

Risk aversion is when one prefers certainty over uncertainty. Our brain has millions of years of evolution, where we mostly became risk-averse, as it was too dangerous to take risks in an environment full of predators and dangers. As a result, two emotions were added to our psyche: fear and greed. These are two forces that govern many aspects of our everyday lives. Since our modern life no longer requires us to survive from predators and danger is no longer lurking in every corner, these emotions are no longer that helpful. However, global markets and decision-making are still led by fear and greed. These emotions are so dominant that there is a special index, the fear and greed index, that shows whether the investors are fearful or greedy in financial markets. This index influences financial decision-makers and retail traders worldwide, and monitoring it is crucial to determine whether it is a good time to invest in stocks. Celebrities and large investors can seriously impact this index as their decisions have an impact on millions of people. While you may think that celebrities are impulsive gamblers and risk-takers and investors, cold calculators, research reveals that the reality is more complex. Risk tolerance is fluid and is mainly shaped by identity for celebrities, while investors are more shaped by market mechanics.

Celebrity risk-taking

Celebrities use their reputation as capital. Celebrities use risks strategically to positively shape their public identity. For example, many CEOs increase the R&D (Research and Development) budget of their companies to align with expectations of innovation and leadership. Companies spend billions of dollars, and this money is not always productive. Sometimes, no results are achieved, making it a high-risk investment. Despite risks, when innovation is achieved, like with the Volkswagen ID EV series, the revenue far outweighs the investment. The opposite is the case with state-owned firms. In China, companies that are owned by the government are not as willing to invest in innovation, and progress is usually slow. Celebrity CEOs typically take more risks, and here are the main triggers for celebrity risk-taking:

Media visibility – Firms with high CEO coverage on social media tend to spend more on R&D. People are watching, and they love seeing their favorite CEOs innovating the sector more.
External hiring – When companies hire celebrity CEOs externally for the restaurant sector, for example, these CEOs tend to take higher risks to prove their leadership and visionary skills.

Overall, celebrities tend to take more risks because of their exposure to a wider audience and willingness to prove themselves.

Investor risk appetite

Investors should be cold and calculated, but this is not the case in real life. While experienced investors tend to make more calculated decisions, retail investors are more likely to follow fear and greed, and other emotions in their decision-making. This is also amplified by the capital. Higher than capital under management, more rational and well-caucaulted decisions should be made, while retail investors with low budgets tend to risk more. Investor psychology also varies dramatically according to demographics. Women tend to be more risk-averse than men, while younger investors are more likely to be affected by cognitive biases. Despite there being high-risk investors, most investors are taking calculated risks, meaning they know how much they risk and what to expect, which is crucial. Despite taking risks, celebrities tend to take higher risks due to factors mentioned above, while investors also take risks, but these risks are more calculated, making them more risk-averse as a result.

Conclusion

In the end, celebrities generally exhibit less risk aversion than traditional investors. Celebrities leverage their status and audience to take more strategic risks, often to shape their public identity. Investors, on the other hand, operate within market mechanics and sentiment (like the fear and greed index), leading to more calculated and cautious risk-taking to preserve capital.

Author Profile

Adam Regan: Deputy Editor

Features and account management. 7 years media experience. Previously covered features for online and print editions.

Email Adam@MarkMeets.com