Reconciling Self-Assessed with Psychometric Risk Tolerance: A New Framework for Profiling Risk among Investors

Camilla Mazzoli and Fabrizio Palmucci

Journal of Behavioral Finance, 2025, vol. 26, issue 2, 201-214

Abstract: Financial advisors need to assess their clients’ risk profile to properly manage their portfolio risk and comply with regulatory provisions. Assessing an investor’s financial risk tolerance (FRT) is a challenge in the advisory process and none of the existing measures can be easily employed on a large scale. Previous literature has revealed a gap between self-assessed and psychometrically assessed measures of FRT (PA_FRT) but has not yet offered a solution to fill this gap. Thus, we propose a model that consistently estimates the PA_FRT by leveraging retail investors’ self-assessment and other information typically submitted in standard bank questionnaires. Our model represents a promising tool for financial advisors looking to improve their customers’ risk profiling.

Date: 2025
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DOI: 10.1080/15427560.2023.2271108

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