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The impact of personality traits on attitude to financial risk

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  • Brooks, Chris
  • Williams, Louis

Abstract

While the effects of emotions on attitudes to investment risk are now well documented, the influence of personality factors has been less researched. This paper examines the role of personality traits in determining financial risk tolerance. Using an extensive survey of UK-based retail investors, we show that personality traits and characteristics are more important than emotions in determining attitude to risk. We also observe that the widely adopted ‘Big Five’ framework is insufficient to characterise this relationship adequately, with significant roles for financial self-efficacy, resilience, and trait anger. Since some of these characteristics can be modified, our findings are suggestive that appropriate training and support for those making financial decisions could lead to better outcomes over the longer term.

Suggested Citation

  • Brooks, Chris & Williams, Louis, 2021. "The impact of personality traits on attitude to financial risk," Research in International Business and Finance, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921001227
    DOI: 10.1016/j.ribaf.2021.101501
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    More about this item

    Keywords

    Retail investors; Attitude to risk; Risk tolerance; Emotions; Personality traits; Financial decisions;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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