An Improved Measure of Risk Aversion

19 Pages Posted: 23 Apr 2013


This study investigates financial risk aversion using an improved measure based on income gambles and rigorously related to optimal portfolio choices. The new measure modifies a previous measure by adding graphical presentations to clarify the impact of different income choices. We compared the measure’s responses to those of previous non-graphical versions. To enable comparisons to an established risk measure, we also asked the Survey of Consumer Finances (SCF) risk tolerance question. Based on responses from 152 students, there is a significant correlation between relative risk aversion estimates based on the new measure and the SCF question.

Keywords: Investments, Risk tolerance, Risk aversion

Suggested Citation

Hanna, Sherman D. and Lindamood, Suzanne, An Improved Measure of Risk Aversion. Journal of Financial Counseling and Planning, Vol. 15, No. 2, pp. 27-45, 2004. Available at SSRN:

Sherman D. Hanna (Contact Author)

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

Suzanne Lindamood

Independent ( email )

No Address Available

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