Can self-assessed financial risk measures explain and predict bank customers’ objective financial risk?

Cecilia Hermansson

Journal of Economic Behavior & Organization, 2018, vol. 148, issue C, 226-240

Abstract: This paper evaluates risk preference measures by contrasting subjective or self-assessed risk with objective risk, as implicated by bank customers’ actual portfolio allocation. Using a detailed data set of 7,234 bank customers, we find that subjective risk measures can explain and predict objective risk, but that the relationship is relatively weak. Subjective measures that uses survey questions about the customers’ trade-off between risk and return is a better measure than the hypothetical lottery for explaining objective risk. Both measures are relatively weak at predicting objective risk, but perform better than using a naïve model. We also find that multiple-item variables are somewhat better than single-item variables for explaining objective risk.

Keywords: Risk preferences; Elicitation methods; Household survey; Household finance (search for similar items in EconPapers)
JEL-codes: C81 C83 D14 D81 G11 G21 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:148:y:2018:i:c:p:226-240

DOI: 10.1016/j.jebo.2018.02.018

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