Superstition and Risk Taking: Evidence from “Zodiac Year” Beliefs in China

Raymond Fisman, Wei Huang (), Bo Ning (), Yue Pan (), Jiaping Qiu () and Yongxiang Wang ()
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Wei Huang: School of Finance, University of International Business and Economics, Beijing 100029, China
Bo Ning: School of Management, Xiamen University, Fujian 361005, China
Yue Pan: School of Economics, Xiamen University, Fujian 361005, China
Jiaping Qiu: DeGroote School of Business, McMaster University, Hamilton, Ontario L8S 4E8, Canada
Yongxiang Wang: SAIF, Shanghai Jiaotong University, Shanghai 200030, China; School of Management and Economics, Chinese University of Hong Kong, Shenzhen, Shenzhen 518172, China

Management Science, 2023, vol. 69, issue 9, 5174-5188

Abstract: We show that superstitions—beliefs without scientific grounding—impact the investment and risk-taking of Chinese firms. We focus on widely held beliefs in bad luck during one’s “zodiac year,” which occurs on a 12-year cycle around a person’s birth year, to study superstitions and risk taking. We first show a direct correspondence between zodiac year and risk taking via survey data: respondents are two percentage points more likely to favor no-risk investments if queried during their zodiac year. Turning to corporate decision making, we find that return volatility declines in the chairman’s zodiac year, suggesting a reduction in risk taking overall. Focusing on specific types of risk taking, investment in R&D and corporate acquisitions both decline during the chairman’s zodiac year; returns around acquisition announcements are also lower, suggesting real allocative consequences of zodiac year beliefs.

Keywords: risk aversion; innovation; mergers & acquisitions; volatility; household finance; superstition; China; zodiac year (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:9:p:5174-5188

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