Predicting Financial Risk Taking Behavior: A Comparison of Questionnaires

Posted: 28 Sep 2018 Last revised: 18 Mar 2019

See all articles by John Grable

John Grable

University of Georgia - Department of Housing & Consumer Economics

Amy Hubble

University of Georgia

Michelle Kruger

University of Georgia - College of Family and Consumer Sciences, Students

Melissa Visbal

Independent

Date Written: September 28, 2018

Abstract

The purpose of this study was to compare and contrast the predictive validity of risk tolerance questionnaires. The tested questionnaires represented measures derived from economic and psychometric theory. It was determined that questionnaires based on economic theory had similar predictive power, implying that both measures provided some degree of reliability across measures. Only the psychometric theory-based risk tolerance measure was found to be correlated to other indicators of risk tolerance. Specifically, scores on the psychometric scale were correlated with knowledge of casino games, the likelihood of gambling, financial decision making experience, and investing knowledge, as well as participant holdings of cash and equities. A key finding from this study is that the psychometric questionnaire was the only measure to predict who was more likely to participate in a risk taking game where the outcomes of the game were unknown and potentially negative. Results from this exploratory study suggest that a questionnaire developed using psychometric theory appears to offer superior predictive ability of financial risk taking, at least when compared across the measurement techniques examined in this study.

Keywords: Risk Taking, Economic Theory, Classical Test Theory, Psychometrics

JEL Classification: D14, D81, D9, G11, G41

Suggested Citation

Grable, John and Hubble, Amy and Kruger, Michelle and Visbal, Melissa, Predicting Financial Risk Taking Behavior: A Comparison of Questionnaires (September 28, 2018). 2019 Academic Research Colloquium for Financial Planning and Related Disciplines. Available at SSRN: https://ssrn.com/abstract=3256775 or http://dx.doi.org/10.2139/ssrn.3256775

John Grable (Contact Author)

University of Georgia - Department of Housing & Consumer Economics ( email )

205 Dawson Hall
Athens, GA 30602-3622
United States

Amy Hubble

University of Georgia ( email )

Athens, GA 30602-6254
United States

Michelle Kruger

University of Georgia - College of Family and Consumer Sciences, Students ( email )

GA
United States

Melissa Visbal

Independent ( email )

No Address Available

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