Determinants of Risk Taking Behavior: The role of Risk Attitudes, Risk Perceptions and Beliefs
Our study analyzes determinants of investors' risk taking behavior. We find that investors' risk taking behavior, i.e. portfolio choices can be predicted using risk attitudes, risk perceptions and belief measures such as optimism and overconfidence. However, the predictive power of these determinants heavily depends on the domain in which it was elicited. More specifically, risk attitudes, risk perceptions and beliefs only allow us to predict investors' risk taking behavior if they are elicited in an investment related context. We think that our results could also benefit practitioners who could incorporate some of the determinants we have used in their investment advisory process.
|Date of creation:||31 Jul 2007|
|Date of revision:|
|Note:||Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.|
|Contact details of provider:|| Postal: D-68131 Mannheim|
Phone: (49) (0) 621-292-2547
Fax: (49) (0) 621-292-5594
Web page: http://www.sfb504.uni-mannheim.de/
More information through EDIRC
Web page: http://www.sfb504.uni-mannheim.de
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benos, Alexandros V., 1998. "Aggressiveness and survival of overconfident traders," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 353-383, September.
- Kyle, Albert S & Wang, F Albert, 1997. " Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?," Journal of Finance, American Finance Association, vol. 52(5), pages 2073-90, December.
- Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
- Cesarini, David & Sandewall, Örjan & Johannesson, Magnus, 2003.
"Confidence Interval Estimation Tasks and the Economics of Overconfidence,"
SSE/EFI Working Paper Series in Economics and Finance
535, Stockholm School of Economics.
- Cesarini, David & Sandewall, Orjan & Johannesson, Magnus, 2006. "Confidence interval estimation tasks and the economics of overconfidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 453-470, November.
- Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 537-579.
- Donkers, Bas & Melenberg, Bertrand & Van Soest, Arthur, 2001.
"Estimating Risk Attitudes Using Lotteries: A Large Sample Approach,"
Journal of Risk and Uncertainty,
Springer, vol. 22(2), pages 165-95, March.
- Donkers, A.C.D. & Melenberg, B. & van Soest, A.H.O., 1999. "Estimating Risk Attitudes Using Lotteries; A Large Sample Approach," Discussion Paper 1999-12, Tilburg University, Center for Economic Research.
- Elke U. Weber & Christopher Hsee, 1998. "Cross-Cultural Differences in Risk Perception, but Cross-Cultural Similarities in Attitudes Towards Perceived Risk," Management Science, INFORMS, vol. 44(9), pages 1205-1217, September.
- Peng, Lin & Xiong, Wei, 2006.
"Investor attention, overconfidence and category learning,"
Journal of Financial Economics,
Elsevier, vol. 80(3), pages 563-602, June.
- Lin Peng & Wei Xiong, 2005. "Investor Attention: Overconfidence and Category Learning," NBER Working Papers 11400, National Bureau of Economic Research, Inc.
- Wang, F. Albert, 2001. "Overconfidence, Investor Sentiment, and Evolution," Journal of Financial Intermediation, Elsevier, vol. 10(2), pages 138-170, April.
- Bernardo, Antonio & Welch, Ivo, 1997.
"On the Evolution of Overconfidence and Entrepreneurs,"
University of California at Los Angeles, Anderson Graduate School of Management
qt6668s4pz, Anderson Graduate School of Management, UCLA.
- Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 301-330, 09.
- Antonio Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Yale School of Management Working Papers ysm211, Yale School of Management, revised 01 Nov 2003.
- Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Cowles Foundation Discussion Papers 1307, Cowles Foundation for Research in Economics, Yale University.
- Hirshleifer, David & Luo, Guo Ying, 2000.
"On the Survival of Overconfident Traders in a Competitive Securities Market,"
15347, University Library of Munich, Germany.
- Hirshleifer, David & Luo, Guo Ying, 2001. "On the survival of overconfident traders in a competitive securities market," Journal of Financial Markets, Elsevier, vol. 4(1), pages 73-84, January.
- Daniel Dorn & Gur Huberman, 2005. "Talk and Action: What Individual Investors Say and What They Do," Review of Finance, Springer, vol. 9(4), pages 437-481, December.
- Lawrence, Michael & O'Connor, Marcus, 1993. "Scale, Variability, and the Calibration of Judgmental Prediction Intervals," Organizational Behavior and Human Decision Processes, Elsevier, vol. 56(3), pages 441-458, December.
- Terrance Odean, 1998. "Volume, Volatility, Price and Profit When All Traders Are Above Average," Finance 9803001, EconWPA.
- Elke U. Weber & Richard A. Milliman, 1997. "Perceived Risk Attitudes: Relating Risk Perception to Risky Choice," Management Science, INFORMS, vol. 43(2), pages 123-144, February.
- Terrance Odean, 1998. "Volume, Volatility, Price, and Profit When All Traders Are Above Average," Journal of Finance, American Finance Association, vol. 53(6), pages 1887-1934, December.
- Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
- Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2004.
"The Impact of Experience on Risk Taking, Overconfidence, and Herding of Fund Managers: Complementary Survey Evidence,"
Hannover Economic Papers (HEP)
dp-292, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Menkhoff, Lukas & Schmidt, Ulrich & Brozynski, Torsten, 2006. "The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence," European Economic Review, Elsevier, vol. 50(7), pages 1753-1766, October.
- Itzhak Ben-David & John R. Graham & Campbell R. Harvey, 2007. "Managerial Overconfidence and Corporate Policies," NBER Working Papers 13711, National Bureau of Economic Research, Inc.
- J. Tobin, 1958.
"Liquidity Preference as Behavior Towards Risk,"
Review of Economic Studies,
Oxford University Press, vol. 25(2), pages 65-86.
- Gerlinde Fellner & Boris Maciejovsky, .
"Risk Attitude and Market Behavior: Evidence from Experimental Asset Markets,"
Papers on Strategic Interaction
2002-34, Max Planck Institute of Economics, Strategic Interaction Group.
- Fellner, Gerlinde & Maciejovsky, Boris, 2007. "Risk attitude and market behavior: Evidence from experimental asset markets," Journal of Economic Psychology, Elsevier, vol. 28(3), pages 338-350, June.
- Coval, Joshua D. & Thakor, Anjan V., 2005. "Financial intermediation as a beliefs-bridge between optimists and pessimists," Journal of Financial Economics, Elsevier, vol. 75(3), pages 535-569, March.
- Albert Wang, F., 1998. "Strategic trading, asymmetric information and heterogeneous prior beliefs," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 321-352, September.
When requesting a correction, please mention this item's handle: RePEc:xrs:sfbmaa:07-56. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carsten Schmidt)The email address of this maintainer does not seem to be valid anymore. Please ask Carsten Schmidt to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.