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Does Personality Affect Personal Financial Risk Tolerance Behavior?

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  • Alan Wong
  • Bernardo Carducci

Abstract

This study examines the relationships between personal financial risk tolerance and personality dimensions of extraversion, conscientiousness, agreeableness, emotional stability and openness. It is found that extraversion and openness are positively linked while conscientiousness and agreeableness are negatively linked to financial risk tolerance. There is no relationship between emotional stability and financial risk tolerance. Plausible explanations for the observed relationships between financial risk tolerance and the five personality dimensions are discussed. The study also shows that males have higher risk tolerance than females but age does not affect a person’s risk tolerance, lending support to past studies. When respondents are categorized into subgroups of low and high scores in each personality dimension (e.g., high extraversion score subgroup and low extraversion score subgroup), the results generally show a difference in risk tolerance between male and female respondents in each of the score groups. The difference is even found in the emotional stability low and high score subgroups in spite of the fact that there is no relationship between risk tolerance and emotional stability. The study also indicates that respondents seem to have an accurate self-assessment of their risk tolerance compared to the risk tolerance score derived from respondents’ intended actions in risk-taking scenarios.

Suggested Citation

  • Alan Wong & Bernardo Carducci, 2013. "Does Personality Affect Personal Financial Risk Tolerance Behavior?," The IUP Journal of Applied Finance, IUP Publications, vol. 19(3), pages 5-18, July.
    • Handle: RePEc:icf:icfjaf:v:19:y:2013:i:3:p:5-18
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    Cited by:

    1. 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.
    2. Brooks, Chris & Williams, Louis, 2021. "The impact of personality traits on attitude to financial risk," Research in International Business and Finance, Elsevier, vol. 58(C).
    3. John Grable & Dee Warmath & Eun Jin Kwak, 2022. "An Assessment of the Association between Political Orientation and Financial Risk Tolerance," JRFM, MDPI, vol. 15(5), pages 1-16, April.
    4. Yadav Devi Prasad Behera & Sudhansu Sekhar Nanda & Saroj Kumar Sahoo & Tushar Ranjan Sahoo, 2021. "The Compounding Effect of Investors’ Cognition and Risk Absorption Potential on Enhancing the Level of Interest towards Investment in the Domestic Capital Market," JRFM, MDPI, vol. 14(3), pages 1-18, February.
    5. Rabbani, Abed G. & Yao, Zheying & Wang, Christina, 2019. "Does personality predict financial risk tolerance of pre-retiree baby boomers?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 124-132.

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