Understanding and Assessing Financial Risk
Tolerance: A Biological Perspective
W. V. Harlow
Keith C. Brown
Financial Analysts Journal 46, 1990, pp. 50-62
The determination of an investor’s tolerance for
risk is a cornerstone of the asset allocation process. Yet the various ad hoc techniques
currently employed to gauge risk tolerance lack a theoretical basis for
individual differences in attitudes toward uncertainty. Our study provides empirical evidence
supporting a theoretical link between financial risk tolerance and certain
behavioral traits. It also provides
indirect evidence for the notion of a ‘life-cycle’ of economic
preferences (i.e., risk aversion increasing with age) and direct support for
the usefulness of risk-tolerance assessment procedures that concentrate on
investor-specific psychological profiles.
Download this paper (PDF
format)
Return to
Keith Brown’s Published Paper Page