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The Psychological Studies
[By Staff Reporters]
Understanding risk tolerance should not be a guessing game especially when dozens of academic studies can point us in the right direction. Below are 2 important academic studies in the field of risk tolerance.
- Measuring the Perception of Financial Risk Tolerance: A Tale of Two Measures – John Gilliam, Swarn Chatterjee and John Grable – 2010
This study compares the explanatory power of a simple question about risk versus a multi-dimensional 13-item questionnaire when trying to understand someone’s risk tolerance. Unsurprisingly the multi-dimensional questionnaire showed better results. The research helps explain why advisors should not be using boilerplate questionnaires.
- Insights from Psychology and Psychometrics on Measuring Risk Tolerance – Michael Roszkowski, Geoff Davey, John Grable – 2005
This paper re-enforces previous studies that show risk tolerance can be measured as long as the questionnaire is long enough and asks good questions (doesn’t mix in questions about risk capacity and risk needs).
More:
- Risk Aversion and Investment Alternatives
- On The Next Stock Market Correction?
- The [Negative] Short-Term Implications of Investment Portfolio Diversification
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[RISK TOLERANCE v. RISK AVERSION]
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