 | Linking Psychometrically Measured Financial Risk Tolerance With Choice Behaviour. |
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Authors | Peter Brooks from Barclays Wealth, London, UK | Greg B Davies from Barclays Wealth, London, UK | Daniel P Egan (Presenting Author) from Barclays Wealth, London, UK |
| Session | Parallel Sessions 3 - Stream 2 4 September 2008, from 17.00 to 17.20 |
| Category | Empirical |
| Abstract | Financial institutions have a regulatory obligation to determine the risk tolerance of their investment clients. We present a psychometric risk tolerance questionnaire is a reasonable proxy for financial risk taking behaviour in a stated choice experiment. We find that individuals that indicate greater risk tolerance on our psychometric scale also indicate that they are willing to bear greater risk in choices between the outcome distributions of risky investments. Our approach is novel for a number of reasons. Firstly we create direct linkages between a subjective psychometric measure of financial risk and utility risk parameters. Secondly we use pseudo-continuous outcome distributions in our choice tasks, rather than the more conventional binary gambles, and thirdly, our study respondents were sourced from the wider UK population with an income constraint roughly equivalent to the top 10% of all earners. |
| Link to the Paper | |
| Link to the Presentation | Click here to obtain the presentation |
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