Risk Preferences of Small Private Investors: The Role of Dispositional Tendency and Aspirations
Joanna Sokołowska , Piotr Makowiec
AbstractIn the dominant approach, it is assumed that risk preferences reflect the shape of utility function. Here, the alternative approach is, in which risk preferences are result of: (1) individual differences in focus on either potential or security that impacts decision weights put to good and bad outcomes and (2) aspirations that impact the trade-off between risk and return. In line with this approach: (1) individuals focused on potential are more risk prone than those focused on security and (2) investors, who have high aspirations are risk seeking. Sensation-seeking scale was used as a proxy for the security/potential focus. It was expected that investors with high need for sensation seeking would be more risk prone than those with a low need for sensation seeking. As for aspirations, it was expected that investors set high aspirations in a bull market and low aspirations in a bear market. Thus, they are risk avoiding in a bear market and risk seeking in a bull market. These hypotheses were supported in an experiment carried out via the Internet with small private investors (N=292).
|Journal series||Journal of Behavioral and Experimental Economics, ISSN 2214-8043, (A 15 pkt)|
|Publication size in sheets||1.5|
|Keywords in English||bear and bull markets, risk preferences, aspirations, sensation-seeking, SP/A model, Behavioral Portfolio Theory, efficient frontier|
|ASJC Classification||; ;|
|Publication indicators||: 2015 = 0.637; : 2015 = 0.34 (2) - 2015=0.34 (5)|
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