Mind the Gap: Inconsistencies Between Subjective and Objective Financial Risk Tolerance

Nicoletta Marinelli, Camilla Mazzoli and Fabrizio Palmucci

Journal of Behavioral Finance, 2017, vol. 18, issue 2, 219-230

Abstract: Investors' financial risk tolerance is crucial in the formulation of suitable financial advice; in the past, assessment efforts relied on multiple approaches and techniques, but their consistency is still an issue. The authors focus on 2 metrics traditionally proposed (self-assessment and portfolio composition) and test their mutual consistency on a sample of 2,374 investors. The approach allows them to discriminate between inconsistencies due to wrong portfolio compositions and those arising from wrong self-assessments. The authors show that low financial literacy, high income, no children, and incautious economic behavior are commonly associated with such inconsistencies.

Date: 2017
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DOI: 10.1080/15427560.2017.1308944

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