Risk Attitude and Rational Decision-making: A Comparative Analysis of Commercial Bank of Ethiopia with Bank of Abyssinia
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Date
2007-03
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A.A.U
Abstract
The players in the financial sectors such as banks face multifaceted forces of risk that calls
for decision makers who tend to take risks while ensuring proper risk management. Although
there is a need for proper risk taking behavior in the Ethiopian banking industry, there is a
blurred picture of decision makers ' behavior in this regard. Whether the risk taking behavior
of the existing managers in the Ethiopian Banking industry is risk aversive, risk neutral or
risk prone, it is kept unnoticed since no research has been made in the area. Besides, whether
such behavior varies with individual decisions, private based settings or government based
settings is one of the central inquiries of this research. To unfold this, the analysis is made
based on mail survey method with two sets of questionnaires administered and distributed to
a sum of eighty respondents of Commercial Bank of Ethiopia and of Bank of Abyssinia. The
measurement involved various cross checking mechanisms including the use of preference
theory of Hammond (1967) and decision analysis. With this procedure, the study arrived at a
conclusive result that attitude towards risk is context bounded. That is risk taking behavior
improves when the decision maker progressively moves from personal to organizational
decision, from individual to group decision, and from government establishment to private
establishment in the cases under investigation. The attributed causes to such behavior
include personal fear of decision makers, measures taken by owners and the board of
directors, the nature of the organization and the imbalance between reward and penalty.
Besides, the impact of such behavior on overall organizational performance was also
investigated.
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Keywords
Commercial Bank, Rational Decision-making