We relax assumptions on individual risk preference, and set two theoretical rules for portfolio choices: either minimize or maximize risk, for any return. Risk is modeled by four alternative formulas. We empirically test these rules by observing N = 690 individuals (Caucasians, bank customers and financial professionals, aged 18-88), while making risky decisions, with measurement of Skin Conductance Response. Two perspectives are assumed to evaluate portfolio efficiency: individuals uniquely consider `money'; or they experience a `subjective' perception of money. We find a large dominance of risk-seeking behaviors, if observed through the phenomenology of money, independently from the risk measure used. Conversely, the same individuals appear risk averter, when values include the subjective experiences, and risk is assumed to be mentally projected with standard deviation formula. These results are consistent for sub-groups of individuals, by gender, age, education and profession. Implications are severe, as a sign of unawareness of behavior under risk.

Lucarelli, C., Maggi, M., Uberti, P. (2016). Risk Seeking or Risk aversion? Phenomenology and Perception [Working paper] [10.2139/ssrn.2724635].

Risk Seeking or Risk aversion? Phenomenology and Perception

Uberti, P
2016

Abstract

We relax assumptions on individual risk preference, and set two theoretical rules for portfolio choices: either minimize or maximize risk, for any return. Risk is modeled by four alternative formulas. We empirically test these rules by observing N = 690 individuals (Caucasians, bank customers and financial professionals, aged 18-88), while making risky decisions, with measurement of Skin Conductance Response. Two perspectives are assumed to evaluate portfolio efficiency: individuals uniquely consider `money'; or they experience a `subjective' perception of money. We find a large dominance of risk-seeking behaviors, if observed through the phenomenology of money, independently from the risk measure used. Conversely, the same individuals appear risk averter, when values include the subjective experiences, and risk is assumed to be mentally projected with standard deviation formula. These results are consistent for sub-groups of individuals, by gender, age, education and profession. Implications are severe, as a sign of unawareness of behavior under risk.
Working paper
Scientifica
Risk aversion; Heterogeneity; Risk Measures; Subjective Values; Model Evaluation and Selection; Skin Conductance Response
English
Lucarelli, C., Maggi, M., Uberti, P. (2016). Risk Seeking or Risk aversion? Phenomenology and Perception [Working paper] [10.2139/ssrn.2724635].
Lucarelli, C; Maggi, M; Uberti, P
File in questo prodotto:
File Dimensione Formato  
Lucarelli-2016-Risk Seeking or Risk aversion-VoR.pdf

accesso aperto

Descrizione: Working paper
Tipologia di allegato: Submitted Version (Pre-print)
Dimensione 1.19 MB
Formato Adobe PDF
1.19 MB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/396952
Citazioni
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
Social impact