IDEAS home Printed from https://ideas.repec.org/a/sae/vikjou/v41y2016i2p117-131.html
   My bibliography  Save this article

Relationship between Biopsychosocial Factors and Financial Risk Tolerance: An Empirical Study

Author

Listed:
  • M Kannadhasan
  • S Aramvalarthan
  • S K Mitra
  • Vinay Goyal

Abstract

Executive Summary Financial risk tolerance (FRT) refers to the retail investors’ willingness to accept the negative changes in the value of investment or an outcome that is adversely different from the expected one. Understanding and assessing FRT plays a crucial role in individual choices about wealth accumulation, portfolio allocation, and all other investment and finance-related decisions, and in achieving financial goals. An advisor has to accurately assess FRT for achieving his/her goal or investor’s goal. Failure to do so leads to the choice of an investment option/portfolio which is inconsistent with one’s FRT, resulting in investor disappointment, that is, unbearable loss to the client. Such a situation may adversely affect the client–advisor relationship. Measuring FRT is challenging as it is a multidimensional attitude. Besides, it is an elusive concept that appears to be influenced by a number of predisposing factors such as demographic, environmental, and psychosocial factors. This study aims to identify the factors that are related to risk tolerance from outside the financial services domain such as psychology, economics, and bio-sociology. It deals most specifically with the relationship between biopsychosocial factors and FRT. Those who are interested in assessing and predicting FRT can move closer to a theoretical account that blends psychological and economic insights and supplements the understanding of risk-taking attitudes and behaviour of retail investors. Such an understanding will help financial advisors, policy makers, and researchers in identifying the determinants of an individual’s FRT to suggest the suitable investment alternatives to their clients. A single cross-sectional survey was conducted among 951 retail investors with various levels of investment experience through a structured questionnaire covering a variety of demographic factors. An analysis of the data collected through the questionnaire indicates that all the three factors—self-esteem, personality type, and sensation seeking—are positively related to FRT. This study adds to the extant literature on psychological determinants of FRT.

Suggested Citation

  • M Kannadhasan & S Aramvalarthan & S K Mitra & Vinay Goyal, 2016. "Relationship between Biopsychosocial Factors and Financial Risk Tolerance: An Empirical Study," Vikalpa: The Journal for Decision Makers, , vol. 41(2), pages 117-131, June.
    • Handle: RePEc:sae:vikjou:v:41:y:2016:i:2:p:117-131
    DOI: 10.1177/0256090916642685
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0256090916642685
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0256090916642685?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Bragues, George, 2005. "Business is one thing, Ethics is Another: Revisiting Bernard Mandeville’s The Fable of the Bees," Business Ethics Quarterly, Cambridge University Press, vol. 15(2), pages 179-203, April.
    2. Yao, Rui & Sharpe, Deanna L. & Wang, Feifei, 2011. "Decomposing the age effect on risk tolerance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 879-887.
    3. Schooley, Diane K. & Worden, Debra Drecnik, 1996. "Risk aversion measures: comparing attitudes and asset allocation," Financial Services Review, Elsevier, vol. 5(2), pages 87-99.
    4. Jesse Bricker & Brian Bucks & Arthur B. Kennickell & Traci L. Mach & Kevin B. Moore, 2011. "Surveying the aftermath of the storm: changes in family finances from 2007 to 2009," Finance and Economics Discussion Series 2011-17, Board of Governors of the Federal Reserve System (U.S.).
    5. repec:dau:papers:123456789/310 is not listed on IDEAS
    6. Selima Mansour & Elyès Jouini & Clotilde Napp, 2006. "Is There a “Pessimisticâ€\x9D Bias in Individual Beliefs? Evidence from a Simple Survey," Theory and Decision, Springer, vol. 61(4), pages 345-362, December.
    7. Selima Benmansour & Elyès Jouini & Clotilde Napp, 2006. "Is There a Pessimistic Bias in Individual Beliefs? Evidence from a Simple Survey," Post-Print halshs-00163625, HAL.
    8. Selima Benmansour & Elyès Jouini & Clotilde Napp, 2006. "Is there a pessimistic bias in individual beliefs ? Evidence from survey dat," Post-Print halshs-00163694, HAL.
    9. Brian Lucey & Charles Larkin, 2012. "Risk Tolerance and Demographic Characteristics: Preliminary Irish Evidence," The Institute for International Integration Studies Discussion Paper Series iiisdp406, IIIS.
    10. Sheri Worthy & Jeffrey Jonkman & Lynn Blinn-Pike, 2010. "Sensation-Seeking, Risk-Taking, and Problematic Financial Behaviors of College Students," Journal of Family and Economic Issues, Springer, vol. 31(2), pages 161-170, June.
    11. Parisa Hosseini Ardehali & Joseph C. Paradi & Mette Asmild, 2005. "Assessing Financial Risk Tolerance Of Portfolio Investors Using Data Envelopment Analysis," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 4(03), pages 491-519.
    12. Tenenhaus, Michel & Vinzi, Vincenzo Esposito & Chatelin, Yves-Marie & Lauro, Carlo, 2005. "PLS path modeling," Computational Statistics & Data Analysis, Elsevier, vol. 48(1), pages 159-205, January.
    13. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    14. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Heena Thanki & Narayan Baser, 2019. "Interactive Impact of Demographic Variables and Personality Type on Risk Tolerance," Emerging Economy Studies, International Management Institute, vol. 5(1), pages 42-54, May.
    2. Kamini Rai & Abha Gupta & Anshu Tyagi, 2021. "Personality Traits Leads to Investor’s Financial Risk Tolerance: A Structural Equation Modelling Approach," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 46(4), pages 422-437, November.
    3. Daniel M. V. Bernaola & Gizelle D. Willows & Darron West, 2021. "The relevance of anger, anxiety, gender and race in investment decisions," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 20(1), pages 1-21, June.
    4. Umair Baig & Batool Muhammad Hussain & Vida Davidaviciene & Ieva Meidute-Kavaliauskiene, 2021. "Exploring Investment Behavior of Women Entrepreneur: Some Future Directions," IJFS, MDPI, vol. 9(2), pages 1-15, April.
    5. Anbar, Adem & Eker, Melek, 2019. "The Effect of Sociodemographic Variables and Love of Money on Financial Risk Tolerance of Bankers," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 10(4), pages 855-866, July.
    6. Shakira MUKHTAR & Anisa JAN, 2023. "Decoding financial literacy's mediating role: analyzing the influence of biopsychosocial indicators on financial satisfaction and risk tolerance among millennial investors," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(637), W), pages 219-242, Winter.
    7. Susara Johanna Ferreira, 2019. "Is financial risk tolerance influenced by personality traits?," Proceedings of Economics and Finance Conferences 9511451, International Institute of Social and Economic Sciences.
    8. J. Lawrenson & Z. Dickason-Koekemoer & David McMillan, 2020. "A model for female South African investors’ financial risk tolerance," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1794493-179, January.
    9. Zhu, Alex Yue Feng, 2019. "Financial risk tolerance of Hong Kong adolescents: A hierarchical model," Children and Youth Services Review, Elsevier, vol. 102(C), pages 193-200.
    10. Heena Thanki & Sweety Shah & Vrajlal Sapovadia & Ankit D. Oza & Dumitru Doru Burduhos-Nergis, 2022. "Role of Gender in Predicting Determinant of Financial Risk Tolerance," Sustainability, MDPI, vol. 14(17), pages 1-13, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chatterjee, Swarn & Finke, Michael & Harness, Nathaniel, 2008. "Self-esteem and Individual Wealth," MPRA Paper 20120, University Library of Munich, Germany, revised 16 Aug 2008.
    2. Bellofatto, Anthony & Broihanne, Marie-Hélène & D'Hondt, Catherine, 2019. "Appetite for information and trading behavior," LIDAM Discussion Papers LFIN 2019002, Université catholique de Louvain, Louvain Finance (LFIN).
    3. Luc Arrondel, 2020. "Financial literacy and French behaviour on the stock market," Working Papers halshs-02505320, HAL.
    4. Selima Ben Mansour & Elyès Jouini & Jean-Michel Marin & Clotilde Napp & Christian Robert, 2008. "Are risk-averse agents more optimistic? A Bayesian estimation approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 843-860.
    5. repec:dau:papers:123456789/2324 is not listed on IDEAS
    6. Hillenbrand, Adrian & Winter, Fabian, 2018. "Volunteering under population uncertainty," Games and Economic Behavior, Elsevier, vol. 109(C), pages 65-81.
    7. Jouini, Elyès & Napp, Clotilde, 2015. "Gurus and belief manipulation," Economic Modelling, Elsevier, vol. 49(C), pages 11-18.
    8. Luc Arrondel & Jérôme Coffinet, 2018. "Demand For Stocks in the Crisis: France 2004-2014," PSE Working Papers halshs-01785324, HAL.
    9. Luc Arrondel & André Masson, 2017. "Why does household demand for shares decline during the crisis? The French case," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 494-495-4, pages 155-177.
    10. Sarah Brown & Mark N. Harris & Christopher Spencer & Karl Taylor, 2020. "Financial Expectations and Household Consumption: Does Middle Inflation Matter?," Working Papers 2020002, The University of Sheffield, Department of Economics.
    11. Luc Arrondel, 2018. "Financial Literacy and Asset Behaviour: Poor Education and Zero for Conduct?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 144-160, March.
    12. Blayac, Thierry & Stéphan, Maïté, 2021. "Are retrospective rail punctuality indicators useful? Evidence from users perceptions," Transportation Research Part A: Policy and Practice, Elsevier, vol. 146(C), pages 193-213.
    13. Luc Arrondel & Jérôme Coffinet, 2021. "Preparing for the tax reform: the risky French households' portfolio in 2018," Working Papers halshs-03322577, HAL.
    14. Robert M. Gillenkirch & Achim Hendriks & Susanne A. Welker, 2014. "Effects of Executive Compensation Complexity on Investor Behaviour in an Experimental Stock Market," European Accounting Review, Taylor & Francis Journals, vol. 23(4), pages 625-645, December.
    15. Azwadi Ali Author_Email: azwadi@umt.edu.my, 2011. "He Mediating Role Of Attitudes In Trading Companies’ Shares," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-222, Conference Master Resources.
    16. Katarzyna Kochaniak & Paweł Ulman, 2020. "Risk-Intolerant but Risk-Taking—Towards a Better Understanding of Inconsistent Survey Responses of the Euro Area Households," Sustainability, MDPI, vol. 12(17), pages 1-26, August.
    17. Pragati Hemrajani & Rajni & Rahul Dhiman, 2024. "Retail Investors’ Financial Risk Tolerance and Risk-taking Behaviour: The Role of Psychological Factors," FIIB Business Review, , vol. 13(1), pages 87-105, January.
    18. Anbar, Adem & Eker, Melek, 2019. "The Effect of Sociodemographic Variables and Love of Money on Financial Risk Tolerance of Bankers," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 10(4), pages 855-866, July.
    19. John Grable & Eun Jin Kwak & Martha Fulk & Aditi Routh, 2022. "A Simplified Measure of Investor Risk Aversion," Journal of Interdisciplinary Economics, , vol. 34(1), pages 7-34, January.
    20. Zandri Koekemoer, 2019. "The influence of the level of education on investors risk tolerance level," Proceedings of Economics and Finance Conferences 9511449, International Institute of Social and Economic Sciences.
    21. Bradbury, Meike A.S. & Hens, Thorsten & Zeisberger, Stefan, 2019. "How persistent are the effects of experience sampling on investor behavior?," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 61-79.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:vikjou:v:41:y:2016:i:2:p:117-131. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.