On the linkage between financial risk tolerance and risk aversion

Robert Faff, D Mulino, D Chai

Research output: Contribution to journalArticle

44 Citations (Scopus)

Abstract

We explore the linkage between financial risk tolerance (FRT) and risk aversion. To do this, we obtain FRT scores from a psychometrically validated survey and conduct a battery of online lottery choice experiments involving the same nonstudent participants. We contrast: real and hypothetical payoffs, low and high stakes, decisions involving gains and losses, and order effects. Our key finding is that the two approaches to analyzing decision making under uncertainty are strongly aligned. We present evidence that this is particularly the case for the female participants in our sample and when high-stake gambles are employed.
Original languageEnglish
Pages (from-to)1-23
Number of pages23
JournalJournal of Financial Research
Volume31
Issue number1
Early online date13 Feb 2008
DOIs
Publication statusPublished - 2008

Keywords

  • linkage
  • financial risk
  • tolerance
  • risk aversion
  • FRT
  • online lottery choice experiments
  • high-stake gambles

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