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Journal Article

An empirical investigation of personal financial risk tolerance

01 Apr 2004-Financial Services Review (Academy of Financial Services)-Vol. 13, Iss: 1, pp 57-78
TL;DR: In this article, a large database of psychometrically derived financial risk tolerance scores and associated demographic information was analyzed and it was found that people's self-assessed risk tolerance generally accords with RTS.
About: This article is published in Financial Services Review.The article was published on 2004-04-01 and is currently open access. It has received 398 citations till now. The article focuses on the topics: Financial risk & Marital status.
Citations
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TL;DR: The technology threat avoidance theory (TTAT), which explains individual IT users' behavior of avoiding the threat of malicious information technologies, enhances the understanding of human behavior under IT threats and makes an important contribution to IT security research and practice.
Abstract: This paper describes the development of the technology threat avoidance theory (TTAT), which explains individual IT users' behavior of avoiding the threat of malicious information technologies. We articulate that avoidance and adoption are two qualitatively different phenomena and contend that technology acceptance theories provide a valuable, but incomplete, understanding of users' IT threat avoidance behavior. Drawing from cybernetic theory and coping theory, TTAT delineates the avoidance behavior as a dynamic positive feedback loop in which users go through two cognitive processes, threat appraisal and coping appraisal, to decide how to cope with IT threats. In the threat appraisal, users will perceive an IT threat if they believe that they are susceptible to malicious IT and that the negative consequences are severe. The threat perception leads to coping appraisal, in which users assess the degree to which the IT threat can be avoided by taking safeguarding measures based on perceived effectiveness and costs of the safeguarding measure and self-efficacy of taking the safeguarding measure. TTAT posits that users are motivated to avoid malicious IT when they perceive a threat and believe that the threat is avoidable by taking safeguarding measures; if users believe that the threat cannot be fully avoided by taking safeguarding measures, they would engage in emotion-focused coping. Integrating process theory and variance theory, TTAT enhances our understanding of human behavior under IT threats and makes an important contribution to IT security research and practice.

506 citations


Cites background from "An empirical investigation of perso..."

  • ...In addition, ample evidence demonstrates that risk tolerance is a personal trait related to demographic variables including age, gender, marital status, race, religion, education, and income (Filbeck et al. 2005; Grable 2000; Hallahan et al. 2004)....

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  • ...Due to the ubiquity of risk in financial decisions, many studies are focused on risk tolerance and find that risk tolerance is positively related to risky financial behaviors (Grable et al. 2006; Hallahan et al. 2004; Yao et al. 2004)....

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Journal ArticleDOI
TL;DR: In this paper, a combined measure of financial literacy that includes both a test score of actual financial literacy and a self-rating of overall financial literacy is used in a study that finds that the combined measure appears to provide greater understanding about how financial literacy affects financial behaviors.
Abstract: A combined measure of financial literacy that includes both a test score of actual financial literacy and a self-rating of overall financial literacy is used in this study. We find that the combined measure appears to provide greater understanding about how financial literacy affects financial behaviors. A large national survey of U.S. adults and households (n = 28,146) was used to investigate how this overall financial literacy is likely to change financial behaviors across five financial topics: credit cards, investments, loans, insurance, and financial advice. For each topic, we include 4–5 financial behaviors (22 in total) to demonstrate the consistency of the findings within and across topics. Although we are unable to identify a causal relationship, the results from the probit analysis show that both actual and perceived financial literacy appear to influence financial behaviors and that perceived financial literacy may be as important as actual financial literacy. (JEL D14, G00)

236 citations

Journal Article
TL;DR: In this article, the authors examined several psychological antecedents to both short-term and long-term investment intentions, with specific focus on the Big Five personality taxonomy, and found that individuals who are more extraverted intend to engage in shortterm investing, while those who are higher in neuroticism and/or risk aversion avoid this activity.

214 citations

Journal ArticleDOI
TL;DR: In this paper, the influence of risk tolerance and risk-related competences on how tourists organize their tourism travel, and the importance that they ascribe to specific types of tourism hazards was analyzed.

153 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigated a new instrument designed to assess investment risk tolerance, the Risk Tolerance Questionnaire (RTQ), and found that respondents with relatively more investment experience had more risk-tolerant responses and higher-risk portfolios than less experienced investors.
Abstract: We investigated a new instrument designed to assess investment risk tolerance, the Risk Tolerance Questionnaire (RTQ). RTQ scores were positively correlated with scores on two other investment risk measures, but were not correlated with a measure of sensation-seeking (Zuckerman, 1994), suggesting that investment risk tolerance is not explainable by a general cross-domain appetite for risk. Importantly, RTQ scores were positively correlated with the riskiness of respondents’ actual investment portfolios, meaning that investors with high risk-tolerance score tend to have higher-risk portfolios. Finally, respondents with relatively more investment experience had more risk-tolerant responses and higher-risk portfolios than less experienced investors.

144 citations

References
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TL;DR: In this article, the authors report on direct measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution, based on survey respondents' choices in hypothetical situations.
Abstract: Individuals' preferences underlying most economic behavior are likely to display substantial heterogeneity. This paper reports on direct measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These experimental measures are based on survey respondents' choices in hypothetical situations. The questions are constructed with as little departure from the theorist's concept of the underlying parameter as possible. The individual measures of preference parameters display substantial heterogeneity. The majority of respondents fall into the least risk-tolerant group, but a substantial minority display higher risk tolerance. The individual measures of intertemporal substitution and time preference also display substantial heterogeneity. The mean risk tolerance is 0.25; the mean elasticity of intertemporal substitution is 0.2. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Because the risk tolerance measure is obtained as part of the main questionnaire of a large survey, it can be related to a number of economic behaviors. Measured risk tolerance is positively related to a number of risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. Although measured risk tolerance explains only a small fraction of the variation of the studied behaviors, these estimates provide evidence about the validity and usefulness of the measures of preference parameters.

1,855 citations

Journal ArticleDOI
TL;DR: This paper reported measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution, based on survey responses to hypothetical situations constructed using an economic theorist's concept of the underlying parameters.
Abstract: This paper reports measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These measures are based on survey responses to hypothetical situations constructed using an economic theorist's concept of the underlying parameters. The individual measures of preference parameters display heterogeneity. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Measured risk tolerance is positively related to risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. These relationships are both statistically and quantitatively significant, although measured risk tolerance explains only a small fraction of the variation of the studied behaviors.

1,785 citations


"An empirical investigation of perso..." refers background in this paper

  • ...…that portfolio allocations may be used to infer attitudes to risk); assessing responses to hypothetical scenarios and/or investment choices (see Barsky et al., 1997 and Hey, 1999); and subjective questions (see Hanna, Gutter & Fan, 1998 for a survey of these different techniques).3 The use of…...

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Journal ArticleDOI
TL;DR: This paper found that single women exhibit relatively more risk aversion in financial decision-making than single men, and that the proportion of wealth held as risky assets is higher for single women than for single men.
Abstract: We find that single women exhibit relatively more risk aversion in financial decision making than single men. Using U.S. sample data, we examine household holdings of risky assets to determine whether there are gender differences in financial risk taking. As wealth increases, the proportion of wealth held as risky assets is estimated to increase by a smaller amount for single women than for single men. Gender differences in financial risk taking are also influenced by age, race, and number of children. Greater financial risk aversion may provide an explanation for women's lower levels of wealth compared with men's. (JEL J16, D81, G11)

1,674 citations


"An empirical investigation of perso..." refers background in this paper

  • ...are: race (see Leigh, 1986; Jianakoplos and Bernasek, 1998; and Xiao et al, 2000) the desire to leave an estate and expectations about the adequacy of pension income (see Schooley and Worden, 1996)....

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  • ...A second demographic that is frequently argued to determine risk tolerance is gender, and Bajtelsmit & Bernasek (1996), Palsson (1996), Jianakoplos and Bernasek (1998), Bajtelsmit, Bernasek and Jianakoplos (1999), Powell and Ansic (1997), and Grable (2000) find support for the notion that females…...

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  • ...Other factors that have been found to impact on risk tolerance and are not included in this study are: race (see Leigh, 1986; Jianakoplos & Bernasek, 1998; Xiao et al., 2000) the desire to leave an estate and expectations about the adequacy of pension income (see Schooley & Worden, 1996)....

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Journal ArticleDOI
TL;DR: This paper examined whether gender differences in risk propensity and strategy in financial decision-making can be viewed as general traits, or whether they arise because of context factors and found that females are less risk seeking than males irrespective of familiarity and framing.

1,276 citations


"An empirical investigation of perso..." refers background in this paper

  • ...…to determine risk tolerance is gender, and Bajtelsmit & Bernasek (1996), Palsson (1996), Jianakoplos and Bernasek (1998), Bajtelsmit, Bernasek and Jianakoplos (1999), Powell and Ansic (1997), and Grable (2000) find support for the notion that females have a lower preference for risk than males....

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  • ...Jel classification: D81 Keywords: Risk tolerance; Risk assessment...

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Journal ArticleDOI
TL;DR: The authors investigate why 75 percent of U.S. households do not hold stocks despite the equity premium and predictions of expected-utility models and show that risk aversion per se, heterogeneity of beliefs, habit persistence, time nonseparability, and quantity constraints on borrowing do not account for the phenomenon.
Abstract: The authors investigate why 75 percent of U.S. households do not hold stocks despite the equity premium and predictions of expected-utility models. The question is relevant for privatization, asset pricing, and tax progressivity issues. They show that risk aversion per se, heterogeneity of beliefs, habit persistence, time nonseparability, and quantity constraints on borrowing do not account for the phenomenon. A wedge between borrowing and lending rates, and minimum-investment requirements are plausible but empirically weak factors. More promising explanations are inertia and departures from expected-utility maximization. There is also qualified support for nondiversifiable income risk as a contributing factor. Copyright 1995 by Royal Economic Society.

971 citations


"An empirical investigation of perso..." refers background or result in this paper

  • ...Education is a third factor that is thought to increase a person’s capacity to evaluate risks inherent to the investment process and therefore endow them with a higher financial risk tolerance (see Baker & Haslem, 1974; Haliassos & Bertaut, 1995; Sung & Hanna, 1996)....

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  • ...The available evidence suggests that single investors are more risk tolerant, although some research has failed to identify any significant relationship (McInish, 1982; Masters, 1989; Haliassos & Bertaut, 1995)....

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  • ...…(Roszkowski, Snelbecker, & Leimberg, 1993) although some research has failed to identify any significant relationship (McInish, 1982; Masters, 1989; Haliassos and Bertaut, 1995).2 The purpose of the current article is to provide evidence as to the behavior and “determinants” of risk tolerance....

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  • ...Jel classification: D81 Keywords: Risk tolerance; Risk assessment...

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  • ...…support for the notion that single investors are more risk tolerant, it contrasts with the existing body of evidence (McInish, 1982; Masters, 1989; Haliassos & Bertaut, 1995) which finds that marital status has no material impact on investment decisions. where RTSi is the ProQuest RTS for…...

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