The Impact of Personality Traits on Attitude to Financial Risk

33 Pages Posted: 9 Dec 2020 Last revised: 16 Apr 2021

See all articles by Chris Brooks

Chris Brooks

University of Reading - ICMA Centre

Louis Williams

University of Reading - ICMA Centre

Date Written: November 12, 2020

Abstract

While the effects of emotions on attitudes to investment risk are now well documented, the influence of personality factors has been much less researched. This paper examines the role of personality traits in determining financial risk tolerance. Using an extensive survey of UK-based retail investors, we show that personality traits and characteristics are more important than emotions in determining attitude to risk. We also observe that the widely adopted ‘Big Five’ framework is insufficient to characterise this relationship adequately, with significant roles for financial self-efficacy, resilience, and trait anger. Since some of these characteristics can be modified, our findings are suggestive that appropriate training and support for those making financial decisions could lead to better outcomes over the longer term.

Keywords: retail investors, attitude to risk, risk tolerance, emotions, personality traits, financial decisions

JEL Classification: G11, G20, J14, C25

Suggested Citation

Brooks, Chris and Williams, Louis, The Impact of Personality Traits on Attitude to Financial Risk (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729114 or http://dx.doi.org/10.2139/ssrn.3729114

Chris Brooks (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Louis Williams

University of Reading - ICMA Centre ( email )

Whiteknights
Henley, RG9 3AU
United Kingdom

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