From power to financial risk: The mediating role of cognitive flexibility and risk perception

Abstract

Risky decisions made by powerful individuals have significant financial implications for businesses and society. Understanding the factors influencing these decisions is crucial. Research indicates that people with a high sense of power are more prone to take investment and gambling risks, yet the role of individual differences remains underexplored. This study (N = 245) investigates cognitive flexibility as a potential mediator between power and financial risk-taking. Results reveal that a sense of power enhances cognitive flexibility and reduces risk perception in both investment and gambling contexts. Consequently, powerful individuals exhibit an increased propensity for risky financial behaviors. Furthermore, a serial mediation effect was identified, showing that cognitive flexibility and risk perception together mediate the relationship between power and risky financial choices. These findings offer novel insights into how cognitive flexibility can explain the link between power and financial risk-taking, highlighting its role in shaping risk perception and decision-making processes.