A test of traditional and psychometric relative risk tolerance measures on household financial risk taking

This article provides a comparative test of two ways in which individual relative risk tolerance is commonly measured in research and practice. Results suggest that the popular method of measuring gambles across lifetime income provides less insight into household investment behavior than the psycho...

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Bibliographic Details
Published in:Finance research letters 2019-09, Vol.30, p.8-13
Main Authors: Grable, John E., Lyons, Angela C., Heo, Wookjae
Format: Article
Language:English
Subjects:
Income gambles
Psychometric assessment
Risk aversion
Risk tolerance
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Summary:This article provides a comparative test of two ways in which individual relative risk tolerance is commonly measured in research and practice. Results suggest that the popular method of measuring gambles across lifetime income provides less insight into household investment behavior than the psychometric approach that is often used to derive a risk profile measure.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2019.03.012