This week, Prof. Dr. Thorsten Hens, Professor of Financial Economics, University of Zurich, will visit us and give a talk at the SWE colloquium (abstract follows).

Designing a risk profiler: Which measures predict risk taking?

In this paper we assess the suitability of different risk profiling measures when individuals are involved in a process of discovering their willingness to take risks over different decision modes. The latter involve decisions under ambiguity, decisions after gaining experience and receiving outcome information on previous decisions. We find that risk taking is associated with individuals’ risk preferences in all decision modes but not with their investment experience. Although simulated experience improves the risk awareness and supports a higher risk taking, it cannot substitute the assessment of risk preferences and in particular the assessment of individual’s loss aversion. In contrast, self-assessed risk tolerance measures are not suitable for predicting risk taking in any decision mode. If risk preferences cannot be assessed, only the gender can be used as a predictor of risk taking.