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Risk tolerance in financial decision making
No full text(editors)
This book sheds light on the emotional side of risk taking behaviour and is based on an innovative cross-disciplinary approach, mixing financial competences with others, related to psychology and affective neuroscience.
The book provides a deep theoretical background on the risk tolerance issue and holds the singular results of an empirical research aimed at investigating the emotional side of risk taking behaviour.
In the theoretical sections, traditional and behavioural approaches are considered to study both the investment and the debt decision process of individuals and households, respectively. The fallacy of traditional measures of responsible investing and borrowing suggests the choice for the introduction of a perspective coming from psychology and affective neuroscience.
The second part of the book describes our unique empirical research which involves more than 450 individuals: banks’ customers, bankers, traders and asset managers. The book proposes traditional and innovative measures of risk tolerance. The most innovative is a measure of the “unbiased risk tolerance” (UR) of individuals, which is the love or aversion to risk shown during a controlled experiment aimed at observing both the choices and the uncontrolled (somatic) responses to risky decisions. We employed a psycho-physiological test, named the Iowa Gambling Task (IGT), in order to evaluate the Skin’s Conductance Response (SCR) while making risky choices. The research compares the unbiased risk tolerance with both a measure for the biased risk tolerance (BR), obtained by a financial risk tolerance self-evaluation test and a measure of the risk tolerance shown in real-life investment/decision choices (RLR). Any difference between UR and BR shows whether individuals are able to properly self-evaluate their risk tolerance or not, over/under valuing their personal capability to afford financial risk. The comparisons among UR, BR and RLR are essential to understand what drives real-life risk taking behaviour: either who we are or who we suppose to be.
Results on both the investment and debt side are provided in order to depict the demographic-socio economical and cultural reasons which could explain incoherencies among UR, BR and RLR.
The book concludes with the implications involved by our results for market participants and for regulators. These implications appear even more relevant if connected to the new regulation of financial markets, introduced by MIFID, in terms of transparency and communication between intermediaries and customers
La tolleranza al rischio nelle decisioni finanziarie: misurazioni biased ed unbiased
No full textIn alcuni comparti delle scienze della mente (psicologia, neuroscienze..), sembra ormai condiviso che le nostre decisioni scaturiscano dall’interazione continua tra processi razionali e processi emotivi. Questo contributo è un estratto preliminare di una ricerca volta ad approfondire alcuni aspetti della componente emotiva che interviene nell’assunzione del rischio in finanza. Si vuole comprendere, in particolare, se ed in quale misura la razionalità, che riteniamo guidi le nostre scelte finanziarie, subisca delle interferenze indotte dall’emotività.
Una collaborazione interdisciplinare tra studiosi di neuroscienze e di discipline finanziarie è alla base di una serie di esperimenti svolti su un campione vasto e stratificato di individui, con competenze differenti (clienti e dipendenti di banche, promotori finanziari, trader ed asset manager). Si pone a confronto la validità di misurazioni di tolleranza al rischio “classiche” (questionari) e di tecniche meno consuete per il mondo della finanza (test psico-fisiologici)
Errors in individual risk tolerance
No full textThis paper focuses on risk tolerance which clearly influences financial decision making. We explore the emotional side of a risk taking behaviour, comparing alternative measures of financial risk tolerance resulting from the consilience of various disciplines. We wonder whether we financially act as we are or as we are supposed to be. Thus we measure first, an unbiased risk tolerance (UR), which is obtained from the psycho physiological reactions of individuals taking risk in laboratory experimental settings; second, a biased risk tolerance (BR) obtained through a psychometrically validated questionnaire. Finally we compare these indicators with risks assumed in the real-life. Our findings confirm that people tend to behave coherently to their self-representation and almost in stark contrast to what they feel. Nevertheless, experiments conducted on more than 440 individuals, with a large presence of trader and asset managers allow us to prove evidence of an ‘unconscious sleeping factor’ which is remarkable when the unbiased risk is much higher than the risk assumed in real life but, at the same time, higher than the self-evaluation. Our findings induce us to propose a model of mental functioning that places rationality and emotion side by side to a third factor: the counterfactual thinking and the wandering mind. The sleeping factor is totally absent in traders and asset managers
LE DECISIONI DI INVESTIMENTO, ASSICURATIVE E PREVIDENZIALITra finanza e psicologia
No full textDa tempo è condiviso che razionalità ed emozioni concorrano ad influenzare i processi decisionali che implicano incertezza e rischio. Esiste un metodo per misurare la tolleranza al rischio senza che le persone siano in grado di condizionarne emotivamente la rilevazione? Quando si esprime una auto-valutazione della propria tolleranza al rischio, si rende un giudizio attendibile, o distorto dalla rappresentazione che si vuole dare di sé agli altri - ed a se stessi? Quindi, gli strumenti impiegati nella realtà operativa, come i questionari MiFID, si fondano su un approccio intrinsecamente corretto? Esistono delle caratteristiche socio-demografiche o professionali che sono più ricorrenti fra gli individui, in relazione alla loro tolleranza al rischio? Ed infine, le decisioni finanziarie prese nella vita reale, di investimento e di sottoscrizione di polizze assicurative, come anche le nostre scelte previdenziali, sono assunte in base alla ragione o alle emozioni?
Grazie alla collaborazione interdisciplinare tra studiosi di finanza e di neuroscienze, il libro tenta di fornire alcune risposte a questi interrogativi, sulla base sia di una ricostruzione dello stato dell’arte, sia di esperimenti psico-fisiologici, uniti a rilevazioni economiche classiche, svolti su un campione di oltre 600 individui, di cui quasi un terzo è costituito da trader on line, gestori di fondi e promotori finanziari
Behaviour in insurance coverage: When psychographic traits concur with socio-demographic and economic conditions
No full textThe international insurance industry is very large and involves trillions of euros in transactions each year. However, the evidence that many people participate in this market should not convey the idea that this participation is always efficient and based on conscious behaviour. Emerging neuroeconomic evidence suggests that insurance decisions are often reflexive, and thus impacted simultaneously by logical and emotional processes. Sometimes, people buy insurance coverage as holding a policy can also bring emotional gains. This book, therefore, tries to shed some light on what drives insurance demand. The analysis examines insurance decisions through the lenses of both theoretical and empirical studies; it also proposes some novel evidence on real-life insurance purchasing taking a variety of personality and psycho-physiological traits into consideration. This book should be of interest for insurers, who should strive to learn all they can about factors that motivate customers to purchase, for regulators, who must create a protective framework that is consistent with actual consumer behaviour, but also for individuals, in order to increase the self-consciousness of their actions
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