What Are Investors Afraid of? Finding the Big Bad Wolf

The aim of financial institutions and regulators is to find an effective way to measure the risk profile of different segments of investors. Both economists and psychologists developed several methodologies to elicit and assess individual risk attitude, but these are not perfect and show several drawbacks when used in practice. Thanks to a unique database of around 15,000 investors, this paper combines survey-based evidence with revealed preferences based upon observed asset allocation. This paper confirms some results known in the literature like the gender and age differences in risk-taking. Moreover, the behavioral clustering approach used for the analysis is useful in an inferential framework. The segments built starting from the questionnaire permit to “forecast” the individual risk attitude that is described by the individual choices in terms of asset allocation. Loss aversion per se is a relevant variable in explaining financial risk-taking.

Download Full-text

Financial risk-taking related to individual risk preference, social comparison and competition

Review of Behavioral Finance ◽

10.1108/rbf-11-2019-0153 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Cited By ~ 1

Author(s):

Tommy Gärling ◽

Dawei Fang ◽

Martin Holmen ◽

Patrik Michaelsen

Keyword(s):

Social Comparison ◽

Risk Taking ◽

Financial Risk ◽

Risk Preference ◽

The Other ◽

Individual Risk ◽

Additional Increase ◽

Content Type ◽

Market Experiments ◽

Increases In Risk

PurposeThe purpose of this paper is to investigate how social comparison and motivation to compete account for elevated risk-taking in fund management corroborated by asset market experiments when performance depends on rank-based incentives.Design/methodology/approachIn two laboratory experiments, university students (n1 = 240/n2 = 120) make choices between risky and certain outcomes of hypothetical sums of money. Both experiments investigate in which direction risky choices in an individual condition (individual risk preference) are shifted when participants compare their performance to another participant's performance (social comparison), being instructed or not to outperform the other (incentive to compete).FindingsIn the absence of incentives to compete, participants tend to minimize the differences between expected outcomes to themselves and to the other, but when provided with incentives to compete, they tend to maximize these differences. An independent additional increase in risk-taking is observed when participants are provided with incentives to compete.Originality/valueOriginal findings include that social comparison does not evoke motivation to compete unless incentives are offered and that increases in risk-taking depend both on what the other chooses and the incentives.

Download Full-text

Leader Development Across Cultures

Journal of Research on Leadership Education ◽

10.1177/194277510600100118 ◽

2006 ◽

Vol 1 (1) ◽

pp. 1-3 ◽

Cited By ~ 1

Author(s):

Allan David Walker

Keyword(s):

United States ◽

Risk Taking ◽

Leader Development ◽

The United States ◽

Individual Risk ◽

Open Debate ◽

The Individual

Imagine you are in a training room and the distinguished professor standing in the front, flown in especially from the United States, tells you unequivocally that schools can only improve when leaders distribute power more equitably among teachers, encourage open debate, and reward individual risk-taking. Now imagine you are leading a school in a place where teachers expect the principal to make the decisions, where it is unacceptable to openly disagree with others, especially the ‘boss’, and where the success of the organization easily trumps that of the individual.

Download Full-text

Credit Risk Contagion Based on Asymmetric Information Association

Complexity ◽

10.1155/2018/2929157 ◽

2018 ◽

Vol 2018 ◽

pp. 1-11 ◽

Cited By ~ 4

Author(s):

Shanshan Jiang ◽

Hong Fan ◽

Min Xia

Keyword(s):

Asymmetric Information ◽

Credit Risk ◽

Financial Market ◽

Risk Attitude ◽

Individual Risk ◽

Complex Network Theory ◽

Structure Information ◽

The Individual ◽

Credit Risk Contagion ◽

Information Association

The study of the contagion law of credit risk is very important for financial market supervision. The existing credit risk contagion models based on complex network theory assume that the information between individuals in the network is symmetrical and analyze the proportion of the individuals infected by the credit risk from a macro perspective. However, how individuals are infected from a microscopic perspective is not clear, besides the level of the infection of the individuals is characterized by only two states: completely infected or not infected, which is not realistic. In this paper, a credit risk contagion model based on asymmetric information association is proposed. The model can effectively describe the correlation among individuals with credit risk. The model can analyze how the risk individuals are infected in the network and can effectively reflect the risk contagion degree of the individual. This paper further analyzes the influence of network structure, information association, individual risk attitude, financial market supervision intensity, and individual risk resisting ability on individual risk contagion. The correctness of the model is verified by theoretical deduction and numerical simulation.

Download Full-text

Irrigation Advisory Services: Farmers preferences and willingness to pay for innovation

Outlook on Agriculture ◽

10.1177/00307270211002848 ◽

2021 ◽

pp. 003072702110028

Author(s):

Filiberto Altobelli ◽

Anna Dalla Marta ◽

Marius Heinen ◽

Claire Jacobs ◽

Elisa Giampietri ◽

...

Keyword(s):

Willingness To Pay ◽

Risk Attitude ◽

Individual Risk ◽

Scheme Design ◽

Weather Forecasts ◽

Advisory Services ◽

Irrigation Water Use ◽

Specific Scheme ◽

Original Survey ◽

The Individual

Irrigation Advisory Services (IAS) are powerful management instruments aiming to achieve the best efficiency in irrigation water use. So far the literature on farmers’ preferences for a specific scheme design of IAS’ characteristics and the related willingness to pay (WTP) is scant. This study provides evidence on farmers’ preference towards six attributes related to the IAS configuration by using a hypothetical choice experiment. Data were collected from an original survey among 108 farmers from Spain, The Netherlands, Italy, Poland and South Africa. Moreover, we investigated the interplay between these preferences and the individual risk attitude (elicited through a lottery task) as a novel contribution. On average, the results suggest a clear farmers’ preference, especially for receiving weather forecasts from the service and for the feature related to water data recording; as the opposite, on average, crop water requirement seems irrelevant. Finally, we found that farmers’ WTP for the different IAS services varies across countries and, in some cases, also according to the individual risk attitude.

Download Full-text

Evolution of the Individual Attitude in the Risk Decision of Waste Incinerator Construction: Cellular Automaton Model

Sustainability ◽

10.3390/su12010368 ◽

2020 ◽

Vol 12 (1) ◽

pp. 368

Author(s):

Jinbu Zhao ◽

Yongyou Nie ◽

Kui Liu ◽

Jizhi Zhou

Keyword(s):

Social Interaction ◽

Cellular Automaton ◽

Evaluation Method ◽

Risk Attitude ◽

Cellular Automaton Model ◽

Individual Risk ◽

Waste Incinerator ◽

Decision Strategy ◽

Sheep Flock ◽

The Individual

In current work, the phenomenon of NIMBY (not in my back yard) for a municipal solid waste incinerator was recognized through an investigation for the evolution of individual risk attitude to group risk attitude (ItGRA). The cellular automaton model was employed to evaluate the risk attitude status with different frequencies of social interaction between residents. In the simulation case, the risk attitude of residents in the pseudo-rational state and non-pseudo-rational state was evaluated, which indicates the sheep-flock effect on the exaggeration of public NIMBY attitude. To the incinerator, the individual risk attitude evolved to supportive group risk attitude at a social interaction frequency 100 times higher than that in family or local neighborhoods, when the initial number of residents in opposition and support was equal. This was supported by the result of the model in the evaluation of resident risk attitude around the incinerator in Shanghai. On the contrary, for those in a non-pseudo-rational state, the ultimate group risk attitude depends on the probability that the residents have a supportive or opposing risk attitude as the concept of individuals was difficult to change. Accordingly, the decision strategy of incinerator construction should consider the influence of the sheep-flock effect, which can increase the attitude of residents in support and lead to the evolution of a group risk attitude to support attitude. Therefore, this study provides insight into the evolution of public attitude to NIMBY attitude and a promising evaluation method to quantify and guide the individual and group risk attitudes.

Download Full-text

KINERJA REKSA DANA PASAR UANG DENGAN METODE SHARPE, TREYNOR DAN JENSEN PADA BURSA EFEK INDONESIA (BEI) – PERIODE 2013 – 2017

Jurnal Manajemen Bisnis Krisnadwipayana ◽

10.35137/jmbk.v7i1.265 ◽

2019 ◽

Vol 7 (1) ◽

Author(s):

Dra. Budhi Suparningsih

Keyword(s):

Mutual Funds ◽

Asset Allocation ◽

Mutual Fund ◽

Money Market ◽

Individual Risk ◽

Expected Return ◽

Money Market Mutual Funds ◽

Quantitative Design ◽

The Individual ◽

Actual Return

<em>This study aims to determine the performance of money market mutual funds using the Sharpe, Treynor and Jensen methods for 5 years from 2013 to 2017. This research uses qualitative quantitative design. The selected money market mutual fund products are 5 aggressive money market mutual fund products, where the asset allocation is money assets. Data analysis method uses Sharpe, Treynor and Jensen methods. In general, the performance of money market mutual funds based on the Sharpe, Treynor and Jensen methods has fluctuated. The higher the value of Sharpe, Treynor and Jensen, the better the performance of the Money Market mutual fund, because it can provide actual return that is higher than the expected return so as to minimize the individual risk that it bears. Mutual funds with Sharpe and Jensen approaches, the best performance of money market mutual funds is PT Bahana Dana Likuid. Whereas according to Treynor’s approach the best is Danamas Rupiah Plus because for five years it gives a positive value. This shows that it is useful to provide information to investors who want to invest in Money Market Mutual Funds, because it results in a higher return on risk-free investment</em>

Download Full-text

Quantitative Pipeline Risk Assessment and Maintenance Optimization

2004 International Pipeline Conference, Volumes 1, 2, and 3 ◽

10.1115/ipc2004-0451 ◽

2004 ◽

Author(s):

Patrick L. Wickenhauser ◽

David K. Playdon

Keyword(s):

Risk Assessment ◽

Risk Ratio ◽

Financial Risk ◽

Minimum Cost ◽

Quantitative Risk Assessment ◽

Individual Risk ◽

Optimal Time ◽

Time Interval ◽

Safety Risk ◽

The Individual

The quantitative risk assessment tool was used to calculate the failure rates, failure consequences and risk levels along the pipeline. Safety risk was characterized by the individual risk ratio, which was defined as the maximum individual risk associated with a given segment divided by the tolerable individual risk. Tolerable individual risk values were defined as a function of population density following the approach developed by MIACC and the UK HSE. Financial risk was expressed in dollars per km-year and included a dollar equivalent for public perception. The recommended maintenance plan was defined as the minimum cost option that achieved a tolerable safety risk. The first step in developing the plan was to identify all segments that do not meet tolerable risk criteria (i.e., segments with an individual risk ratio greater than 1). For each of these segments a number of potential maintenance scenarios that address the dominant failure threats were selected. A cost optimization analysis was then carried out in which the total expected cost associated with each maintenance option was calculated as the sum of implementing the option plus the corresponding financial risk component, amortized over the inspection interval. This analysis was used to identify the minimum cost alternative that meets the individual risk constraint. Outcomes of the analysis included the best maintenance option (e.g., inline inspection, hydrostatic test) and the optimal time interval for segment re-evaluation.

Download Full-text

Trust and risk-taking in a pension investment setting

International Journal of Bank Marketing ◽

10.1108/ijbm-11-2013-0138 ◽

2014 ◽

Vol 32 (5) ◽

pp. 408-428 ◽

Cited By ~ 8

Author(s):

Jeanette Carlsson Hauff

Keyword(s):

Risk Taking ◽

Financial Risk ◽

Pension System ◽

The Body ◽

Financial Knowledge ◽

Risk Level ◽

Financial Industry ◽

Content Type ◽

Influential Variable ◽

The Individual

Purpose – The purpose of this paper is to examine the effect of trust on financial risk-taking in a pension investment setting. Further: to delineate the effects of varying levels of individuals’ financial knowledge and involvement on risk-taking, and on the trust-risk-taking relation. Design/methodology/approach – Questionnaire to a subsample of Swedish bank customers, thereafter statistical analysis using multiple moderated regression. Findings – Support the notion of trust being an influential variable in explaining risk-taking, and show that highly knowledgeable and highly involved individuals take on more risk. That individuals defined by knowledge and involvement have a different trust-risk-taking relation, however, not verified. Research limitations/implications – Adds to the body of research emphasising the importance of “soft”, emotionally tilted input to consumers’ decision making, even concerning financial tasks such as risk-taking. Narrowly defined pension system environment may hamper generalisations since many constructs tested are situation specific. Practical implications – From a practical perspective, individual investment behaviour is of increasing importance for the individual as retirement saver and for the financial industry in its attempt to tailor-make financial products to its customers. From a legislators’ perspective, the dimensions of knowledge and involvement describe the type of consumer supposedly most vulnerable: the uninterested individual with low levels of financial knowledge. Originality/value – Tests the importance of trust on choice of risk level in a pension setting and is able to expand previous results into the area of consumer behaviour regarding pensions. The paper further manages to assess the specificities as regards the relation between trust and risk-taking for individuals with varying levels of knowledge and involvement.

Download Full-text