A Comparison of the Old and New Risk Tolerance Measures in the Survey of Consumer Finances

Abstract

The Survey of Consumer Finances (SCF) has included a 4-level risk tolerance measure since 1983. In 2016 the SCF introduced an additional 11-level risk tolerance measure. We compare the new and old measures, with a regression on the new measure, plus three logistic regressions on cumulative components of the old measure. Many effects of household characteristics were consistent between the regressions, but some characteristics had inconsistent effects, for instance, racial/ethnic status effects. Logistic regressions on stock ownership had lower explanatory power with the new measure than with the old measure. The new measure is simpler than the old, but use of it as a linear measure may have less validity than use of the old measure.

Keywords: Risk tolerance, Equity ownership, Survey of Consumer Finances

JEL Classification: D14