From Risk Preferences to Portfolios: Comparing SCF Risk Scales and Their Predictive Power for Asset Ownership

Shane Heddy, Congrong Ouyang () and Yu Zhang
Additional contact information
Shane Heddy: Department of Personal Financial Planning, Kansas State University, 1324 Lovers Lane, Manhattan, KS 66506, USA
Congrong Ouyang: Department of Agricultural Economics, Texas A&M University, 600 John Kimbrough Blvd, TAMU 2124, College Station, TX 77843, USA
Yu Zhang: Department of Personal Financial Planning, Kansas State University, 1324 Lovers Lane, Manhattan, KS 66506, USA

JRFM, 2025, vol. 18, issue 7, 1-15

Abstract: This study compares two risk tolerance scales used in the Survey of Consumer Finances (SCF), namely the long-standing 4-point scale and the newer 11-point scale, to determine which better captures an individual’s investment risk preferences. The analysis includes exploring how each scale relates to household demographics, socioeconomic factors, and ownership of risky versus conservative investments. By utilizing prospect theory, the findings reveal that while both scales effectively measure risk tolerance, the 11-point scale provides a more detailed understanding of differences in asset ownership across risk levels. For financial professionals, these results highlight the value of using a more granular risk assessment tool to better align investment strategies with client preferences, leading to improved client relationships and outcomes.

Keywords: risk tolerance; Survey of Consumer Finances (SCF); investment behavior; prospect theory; asset allocation (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/18/7/387/pdf (application/pdf)
https://www.mdpi.com/1911-8074/18/7/387/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:18:y:2025:i:7:p:387-:d:1700430

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().