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Stated risk preference predicts risk appetite in structured investment

In: Handbook of Experimental Finance

Author

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  • Doron Sonsino
  • Yaron Lahav
  • Yefim Roth

Abstract

Risk receptiveness statements are increasingly applied in experiments and surveys to control for individual risk attitudes, and the evidence regarding the predictive power of such statements for incentivized risk-taking is accumulating. We report the results of framed field experiments showing that stated risk preference (SRP) links with increased appetite for risk in the context of yearly investment in simple structured deposits. Our adapted SRP task intentionally detaches from the context of financial investment, asking the subjects to rank their willingness to take risk in personal and professional life. Still, the certainty equivalents of the risk-receptive subjects are higher and they exhibit stronger appetite for substantial gains and more optimistic weighting of tail losses compared to the risk-averse subjects. The usability of SRP measures in financial advising is discussed in light of discrepancies between the results of distinct SRP studies.

Suggested Citation

  • Doron Sonsino & Yaron Lahav & Yefim Roth, 2022. "Stated risk preference predicts risk appetite in structured investment," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 31, pages 414-422, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20035_31
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    Keywords

    Economics and Finance;

    Statistics

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