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Daredevil mentality grips investors

Flush with prosperity, more Americans are showing a growing appetite for risk taking.

Barbara Harkness, a retired professor of anthropology, is trying to explain how she turned into a stock speculator.

A child of the 1930s Depression, Harkness always protected her money in bank accounts. But in the early 1990s, she was seduced by the new Gilded Age. She discovered mutual funds, then individual stocks. A couple of years ago, she started trading shares on her personal computer, and recently graduated to day trading here in this Ohio office of Las Vegas-based Bright Trading.

Every time she got more aggressive, she made more money.

"I went from thinking banks are the best place for my money to the worst place," Harkness said.

From cautious saver to citizen speculator in just a decade _ that's quite a trek across the spectrum of financial risk. But if it is extreme, Harkness' journey points to something indicative of American behavior in the 1990s, in investments, careers and social life: a growing appetite for risk.

It shows up in the extraordinary interest in so-called "hard adventure" travel, where risk seekers hack through jungles with machetes or scale the world's highest mountains. Closer to home are the more prosaic but economically important forms of risk taking: more aggressive career shifts and investment strategies.

Numerous barometers of cockiness suggest a looser attitude toward career moves. The so-called quit rate _ a measure of those who voluntarily left their last jobs _ is at 14.5 percent, the highest level since the boom of the late 1980s. Job-hopping, or at least the glamour of job-hopping, is rampant. Executive-search firms expect their revenue this year to be double the level of 1993. And the emergence of the instant Internet zillionaire has created a highly visible risk-taking elite, almost shaming society's risk-averse wage slaves to just "go for it." Especially on campus, this is the phenomenon of the moment.

"They're taking more risks, and they're not worrying about it," says Al Segars, a professor at the business school at the University of North Carolina in Chapel Hill. "Back in 1995, they were going to corporate empires first. Today, the Internet world is more exciting." At Harvard Business School, 30 percent of this year's graduates will join high-tech or venture-capital outfits, up from 12 percent in 1995.

In the portfolio of individual investments in the United States, the 1990s also have brought a steady march toward the higher risks _ and so far, much higher returns _ of stocks and equity mutual funds. At the beginning of the decade, individuals had 50 percent of their financial assets in stocks and stock funds. Today, it's 73 percent, according to the American Association of Individual Investors.

If there is an underlying explanation for the rise of risk-taking in America, it is the cushion produced by so many years of prosperity. The enormous growth in financial wealth has created its own sort of safety net, giving millions of Americans greater wherewithal to take gambles.

Psychologists call this the "house money" effect. If subjects in experiments are told they are starting with zero in their accounts, they often take a sure gain over a risky bet. But, in experiments conducted by Richard Thaler of the University of Chicago, for example, when subjects started with $30 instead of zero, far more people took the gamble. Many other studies have found similar results, reversing an age-old theoretical belief that riches led to risk aversion.

"You can look around you, it feels like we have this "house money' effect of "let's go for it,' " says William Sharpe, a Stanford University professor who shared a Nobel prize in economics in 1990.

More clear is this: One of the strongest things inducing people to keep taking financial risk, experiments have shown, is the periodic big winner. This is what keeps people buying lottery tickets, even though, statistically, a lottery ticket is a terrible bet. With the well-publicized financial bonanza from the Internet and the spectacular gains of so many stocks this decade, there have been scads of big, episodic winnings. The result: People are mightily induced to be bold and hang in there.

This bothers some, of course.

"One of the defining things about this market is lack of risk aversion, especially among small investors," says Edgar Peters, chief investment strategist at Boston-based Panagora Asset Management. He sees a dangerous sense of complacency about the stock market, where investors were emboldened after the 1998 downturn was followed by a resounding snap back. He thinks the memory of past market blood baths is very faint. And that is a point. A large portion of today's investors have no personal recollection of 1973-74, when the Standard & Poor's index dropped 43 percent in 10 months.

Yet even gauging risk is notoriously tricky. By definition, risk is exposure to future losses, but that future is uncertain. Also, there are many kinds of risks. While betting heavily in the stock market leaves investors exposed to possible losses, there also is the risk of being left behind.

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