What Drives Risk Perception? A Global Survey with Financial Professionals and Lay People

Management Science, Forthcoming

33 Pages Posted: 17 May 2019 Last revised: 21 Oct 2019

See all articles by Felix Holzmeister

Felix Holzmeister

University of Innsbruck, Department of Banking and Finance

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Michael Kirchler

University of Innsbruck

Florian Lindner

Max Planck Institute for Research on Collective Goods

Utz Weitzel

VU University Amsterdam; Tinbergen Institute; Radboud University

Stefan Zeisberger

Radboud University, Institute for Management Research; University of Zurich, Department of Banking and Finance

Date Written: April 18, 2019

Abstract

Risk is an integral part of many economic decisions, and is vitally important in finance. Despite extensive research on decision-making under risk, little is known about how risks are actually perceived by financial professionals, the key players in global financial markets. In a large-scale survey experiment with 2,213 finance professionals and 4,559 lay people in nine countries representing ~50% of the world's population and more than 60% of the world's gross domestic product, we expose participants to return distributions with equal expected return and we systematically vary the distributions' next three higher moments. Of these, skewness is the only moment that systematically affects financial professionals' perception of financial risk. Strikingly, variance does not influence risk perception, even though return volatility is the most common risk measure in finance in both academia and the industry. When testing other, compound risk measures, the probability to experience losses is the strongest predictor of what is perceived as being risky. Analyzing professionals' propensity to invest, skewness and loss probability have strong predictive power too. However, volatility and kurtosis also have some additional effect on participants' willingness to invest. Our results are very similar for lay people, and they are robust across and within countries with different cultural backgrounds as well as for different job fields of professionals.

Keywords: Risk perception, investment propensity, financial professionals

Suggested Citation

Holzmeister, Felix and Huber, Juergen and Kirchler, Michael and Lindner, Florian and Weitzel, Utz and Zeisberger, Stefan, What Drives Risk Perception? A Global Survey with Financial Professionals and Lay People (April 18, 2019). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3374893 or http://dx.doi.org/10.2139/ssrn.3374893

Felix Holzmeister (Contact Author)

University of Innsbruck, Department of Banking and Finance ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Juergen Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Michael Kirchler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Florian Lindner

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

HOME PAGE: http://https://sites.google.com/site/florianlindner85/

Utz Weitzel

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Radboud University ( email )

Heyendaalseweg 141
Nijmegen, 6525 AJ
Netherlands

Stefan Zeisberger

Radboud University, Institute for Management Research ( email )

Nijmegen
Netherlands

University of Zurich, Department of Banking and Finance ( email )

Zürich
Switzerland

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