Surprising Risk Tolerance Finding

The financial risk tolerance team discovered something interesting today. The team has been tracking the daily financial risk tolerance of individuals since late 2007. Initial results from the lab suggest that the market does influence people’s willingness to take financial risk. The strongest link is between daily stock market volatility and risk-tolerance scores. When market volatility is up, risk scores drop. When volatility falls, risk scores go up. Generally, people are more likely to increase their tolerance for risk over time.

While these initial results are interesting, the FPP Lab Director, Dr. John Grable, noted, “It looks like the change in risk scores is actually rather small. This means that even though the markets appear to have an influence on subsequent risk attitudes, the actual change in tolerance for risk is not large enough to significantly alter current or future investment choices.”

The research team is currently engaged in a neural pathway analysis to identify other patterns in risk attitudes. Check back for results as they become available.