On the linkage between financial risk tolerance and risk aversion

Robert Faff*, Daniel Mulino, Daniel Chai

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

48 Citations (Scopus)
2 Downloads (Pure)

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
DOIs
Publication statusPublished - Mar 2008
Externally publishedYes

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