Variance risk, downside risk, and tail risk: comparing risk behaviours among public and private sector employees

Abstract

This study examines behavioural differences in risk aversion (variance risk), prudence (downside risk), and temperance (tail risk) between public and private sector employees, employing higher-order risk preference theory. Using two monetary-incentivized behavioural tasks (Multiple Price List and Deck-Schlesinger Lottery) with 1000 participants in Japan, we compare risk behaviours across sectors. Results demonstrate that public employees exhibit significantly higher temperance after accounting for individual-level covariates, indicating stronger aversion to extreme outcomes. Sectoral differences in risk aversion and prudence become insignificant once public service motivation is controlled. These findings highlight the importance of distinguishing multiple risk dimensions in sectoral comparisons.