Financial Risk Perceptions: A Behavioral Perspective

Robert A. Olsen ()
Additional contact information
Robert A. Olsen: Decision Research

Chapter Chapter 4 in Advances in Entrepreneurial Finance, 2011, pp 45-67 from Springer

Abstract: Abstract The generally accepted financial risk metrics, such as variance and Beta, are axiomatic mathematical constructions. They have mathematical validity but can be questioned on behavioral grounds. This chapter suggests a broader alternative approach. First, perception involves experiential content acquired as a result of human/world interaction. It is not merely the product of a passive internal “brain process.” Second, financial risk is hypothesized to be primarily a perception of potential loss as fabricated by an evolutionary dual decision-making process that embraces both affect and formal cognitive analysis. Thus of necessity, perceptions of risk contain both cognitive and affective attributes. Because man is by nature a social creature, perceived risk also entails risk attributes that manifest group concerns. These hypotheses are supported by a comprehensive literature review. Evidence is presented suggesting that this alternative perspective parsimoniously explains many current “risk/return” market anomalies.

Keywords: Decision Maker; Positive Affect; Risk Perception; Financial Risk; Loss Aversion (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (10)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:sprchp:978-1-4419-7527-0_4

Ordering information: This item can be ordered from
http://www.springer.com/9781441975270

DOI: 10.1007/978-1-4419-7527-0_4

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().