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A test of traditional and psychometric relative risk tolerance measures on household financial risk taking

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  • Grable, John E.
  • Lyons, Angela C.
  • Heo, Wookjae

Abstract

This article provides a comparative test of two ways in which individual relative risk tolerance is commonly measured in research and practice. Results suggest that the popular method of measuring gambles across lifetime income provides less insight into household investment behavior than the psychometric approach that is often used to derive a risk profile measure.

Suggested Citation

  • Grable, John E. & Lyons, Angela C. & Heo, Wookjae, 2019. "A test of traditional and psychometric relative risk tolerance measures on household financial risk taking," Finance Research Letters, Elsevier, vol. 30(C), pages 8-13.
    • Handle: RePEc:eee:finlet:v:30:y:2019:i:c:p:8-13
    DOI: 10.1016/j.frl.2019.03.012
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    References listed on IDEAS

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    Citations

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    Cited by:

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    3. Zhang, Dongyang & Guo, Rui, 2020. "The consumption response to household leverage in China: The role of investment at household level," International Review of Financial Analysis, Elsevier, vol. 71(C).
    4. Galizzi, Monica & Hillier, Ashleigh & Schena II, David, 2025. "Autistic adults, financial risk preference, and economic outcomes," Journal of Behavioral and Experimental Finance, Elsevier, vol. 46(C).
    5. Gächter, Ingo & Gächter, Martin, 2021. "Success factors in ICOs: Individual firm characteristics or lucky timing?," Finance Research Letters, Elsevier, vol. 40(C).
    6. John E. Grable & Wookjae Heo & Abed Rabbani, 2021. "Characteristics of random responders in a financial risk-tolerance questionnaire," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 26(1), pages 1-9, March.
    7. Heo, Wookjae & Rabbani, Abed & Grable, John E., 2021. "An Evaluation of the Effect of the COVID-19 Pandemic on the Risk Tolerance of Financial Decision Makers," Finance Research Letters, Elsevier, vol. 41(C).
    8. Lu, Zhiqiang & Wu, Junjie & Li, Hongyu & Galloway, Brian, 2024. "Digital finance and stock market participation: The case of internet wealth management products in China," Economic Systems, Elsevier, vol. 48(1).
    9. Rabbani, Abed G. & Grable, John E., 2022. "Can portfolio risk be described with estimates of financial risk tolerance calibration?," Finance Research Letters, Elsevier, vol. 46(PB).
    10. Hemrajani, Pragati & Rajni, & Khan, Muskan & Dhiman, Rahul, 2023. "Financial risk tolerance: A review and research agenda," European Management Journal, Elsevier, vol. 41(6), pages 1119-1133.
    11. Wookjae Heo & Eunchan Kim, 2025. "Smoothing the Subjective Financial Risk Tolerance: Volatility and Market Implications," Mathematics, MDPI, vol. 13(4), pages 1-34, February.
    12. Wookjae Heo & John E. Grable & Abed G. Rabbani, 2020. "A test of the association between the initial surge in COVID-19 cases and subsequent changes in financial risk tolerance," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 13(1), pages 3-19, August.
    13. Liu, Fan & Lyons, Angela C. & Fang, Eddy S., 2025. "Risk, gender, and digital finance," Finance Research Letters, Elsevier, vol. 79(C).

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    More about this item

    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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