Publication Date
4-2022
School
School of Business
Major
Business: Economics; Business: Finance
Keywords
individual investors, risk perception, risk tolerance, investment decisions, financial advisors
Disciplines
Finance and Financial Management
Recommended Citation
Covey, Claire, "Impact of Risk Perception and Risk Tolerance on Investment Portfolio Decisions" (2022). Senior Honors Theses. 1209.
https://digitalcommons.liberty.edu/honors/1209
Abstract
Average individual investor returns drastically underperform standard investment benchmarks, with common attributing factors including relying on instincts and overconfidence in trading ability. Neural processing, financial risk, risk perception, and risk tolerance literature show how instinctual reactions form and how those reactions affect risk decision-making under the Prospect theory. Examining the effect of neural processing and risk framing on subjective risk perception allows a measurement of the indirect impact on risk tolerance. The stable factors of risk tolerance directly impact investment risk decisions. There are implications of accurately assessing risk tolerance in a client/advisor relationship. Advisor application of a proper risk tolerance assessment in individual client relationships may aid financial and emotional success.
