Risk Preferences of Small Private Investors: The Role of Dispositional Tendency and Aspirations

Joanna Sokołowska , Piotr Makowiec

Abstract

In 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).
Author Joanna Sokołowska (Wydział Psychologii)
Joanna Sokołowska,,
- Wydział Psychologii
, Piotr Makowiec
Piotr Makowiec,,
-
Journal seriesJournal of Behavioral and Experimental Economics, ISSN 2214-8043, (A 15 pkt)
Issue year2015
NoNovember
Pages1-31
Publication size in sheets1.5
Keywords in Englishbear and bull markets, risk preferences, aspirations, sensation-seeking, SP/A model, Behavioral Portfolio Theory, efficient frontier
ASJC Classification3300 General Social Sciences; 2002 Economics and Econometrics; 3202 Applied Psychology
URL https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2725734
Languageen angielski
File
SSRN-id2725734.pdf 1.04 MB
Score (nominal)15
Publication indicators Scopus SNIP (Source Normalised Impact per Paper): 2015 = 0.637; WoS Impact Factor: 2015 = 0.34 (2) - 2015=0.34 (5)
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