Changing risk preferences while taking financial decisions an experimental approach
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With respect to the concept of risk preferences the Neoclassical Capital Market Theory assumes stable and homogeneous ones. On the contrary, the Behavioral Finance Theory supposes variable and heterogeneous preferences. In the light of this conflict the research objective of the present paper is to determine the risk preferences of undergraduate students of the Autonomous University of Queretaro within the financial decision-making process using an experimental study design. Performing two simple experiments with a total of 146 participants the following main results were obtained: The majority of students clearly show heterogeneous risk preferences which were also adapted to varying decision situations – a result that clearly contradicts the position of the Neoclassical Theories. Based on the results of the study it is recommended to further strengthen the position of behavioral concepts in the areas of financial teaching and research in order to better understand the financial decision-making process on a capital market and enterprise level.
Akerlof, G. A. and R. J. shiller (2009). Animal Spirits-How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton University Press, Princeton.
Banerjee, A. V. (1992). A Simple Model of Herd Behavior. Quarterly Journal of Economics, vol. 107, No. 3, pp. 797-817.
Beauchamp, J. P.; D. Cesarini and M. Johannesson (2017). The Psychometric and Empirical Properties of Measures of Risk Preferences. Journal of Risk and Uncertainty, vol. 54, No. 3, pp. 203-237.
Bernard G. (1984). "Utility and Risk Preference Functions". Hagen O. and Wenstop F. (editors), Progress in Utility and Risk Theory. D. Reidel Publishing Company Dordrecht, Holland, pp. 135-143.
Bernoulli, D. (1738). Specimen Theoriae Novae de Mensura Sortis, Commentarii academiae scientiarum imperialis Petropolitanae, pp. 175-192. Translation to English by Sommer, L. (1954) Expedition of a New Theory on the Management of Risk. Econometrica, vol. 22, No. 1, pp. 23-36.
Besley, S. and E. F. Brigham (2009). Fundamentos de Administracion Financiera. 14th ed., Cengage Learning, Mexico City.
Black, F. (1986). Noise. Journal of Finance, vol. 41, No. 3, pp. 529-543.
Brown, K. C.; W. V. Harlow and S. M. Tinik (1988). Risk Aversion, Uncertain Information, and Market Efficiency. Journal of Financial Economics, vol. 22, No. 2, pp. 355-385.
Conte, A., Levati, M. V. and Nardi, C. (2018). Risk Preference and the Role of Emotions. Economica, vol. 85, No. 338, pp. 305-328.
De Bondt, W. (2005). "Bubble Psychology". Hunter, W. C., Kaufman, G. G. and Pomerleano, M. (editors), Asset Price Bubbles - The Implications for Monetary, Regulatory and Institutional Policies. The MIT Press, Cambridge, London, pp. 205-216.
De Bondt, W. and R. Thaler (1985). Does the Stock Market Overreact? Journal of Finance, vol. 40, No. 3, pp. 793-805.
Demmler, M. (2017). Irrationality of Asset Price Bubbles-Human Decision-Making in the Course of Financial Bubbles. Pearson Education de Mexico, Mexico City.
Dohmen, T.; A. Falk; D. Huffman and U. Sunde (2012). The Intergenerational Transmission of Risk and Trust Attitudes. Review of Economic Studies, vol. 79, No. 2, pp. 645-677.
Duncan, J. (1984). Selective attention and the organization of visual information. Journal of Experimental Psychology: General, vol., 113, No. 4, pp. 501-517.
Falk, A. and J. J. Heckman (2009). Lab Experiments Are a Major Source of Knowledge in the Social Sciences. Science, vol. 326, issue 5952, pp. 535-538.
Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, vol. 25, No. 2, pp. 383-417.
Fox, C. R. and D. Tannenbaum (2011). The elusive search of stable risk preferences. Frontiers in Psychology, vol. 2, article 298, pp. 1-4.
Gitman, L. J. and C. J. Zutter (2012). Principles de Administracion Financiera. 12. ed., Pearson Education de Mexico, Atlacomulco, Mexico.
Grether, D. M. (1980). Bayes rule as a descriptive model: The representativeness heuristic. The Quarterly Journal of Economics, vol 95, No. 3, pp. 537-557.
Ho, T. S. Y. and S. B. Lee (2004). The Oxford Guide to Financial Modeling-Applications for Capital Markets, Corporate Finance, Risk Management, and Financial Institutions. Oxford University Press, New York.
INEGI (2005). Curso de Metodologia de la Investigacion. Consulted from: http://www.inegi.org.mx/inegi/spc/doc/INTERNET/22-%20CURSO%20DE%20METODOLOG%C3%8DA%20DE%20LA%20INVESTIGACT%C3%93N.pdf.
ISO (2018). ISO 31000:2018(en) Risk management-Guidelines. Consulted from: https://www.iso.org/obp/ui#isos:std:iso:31000:ed-2:v1:en.
Kahneman, D.; J. L. Knetsch and R. H. Thaler (1991). Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. Journal of Economic Perspectives, vol. 5, No. 1, pp. 193-206.
Kahneman, D. and A. Tversky (1979). Prospect Theory: An Analysis of Decision Under Risk. Econometrica, vol. 47, No. 2, pp. 263-291.
Kandasamy, N.; B. Hardy Pagec, L.; M. Schaffner; J. Graggaber; A. S. Powlson; P. C. Fletcher; M. Gurnell, and J. Coates (2014). Cortisol Shifts Financial Risk Preferences. PNAS, vol. 111, No. 9, pp. 3608-3613.
Lo, A. W. (2017). Adaptive Markets-Financial Evolution at the Speed of Thought. Princeton University Press, Princeton.
Lo, A. W. (2004). The Adaptive Market Hypothesis-Market Efficiency from an Evolutionary Perspective. Journal of Portfolio Management, vol. 30, No. 5, 30th Anniversary Issue, pp. 15-29.
Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics, vol. 47, No. 1, pp. 13-37.
Markowitz, H. M. (1952). Portfolio Selection. Journal of Finance, vol. 7, No. 1, pp. 77-91.
Moore, D. A. and P. J. Healy (2008). The trouble with overconfidence. Psychological Review, vol. 115, No. 2, pp. 502-517.
Morgan, M. S. (2006). Economic Man as Model Man-Ideal Types, Idealization and Caricatures. Journal of History of Economic Thought, vol. 28, No. 1, pp. 1-27.
Mossin, J. (1966). Equilibrium in a Capital Asset Market. Econometrica, vol. 34, No. 4, pp. 768-783.
Mylrea, K. and J. Lattimore (2010). "How to create and use corporate risk tolerance". Fraser, J. and Simkins, B. J. (editors), Enterprise Risk Management-Today's Leading Research and Best Practices for Tomorrow's Executives. John Wiley & Sons, Hoboken, New Jersey, pp. 143-154.
Nicholson, N.; E. Soane; M. Fenton-O'Creevy and P. Willman (2005). Personality and domain-specific risk taking. Journal of Risk Research, vol. 8, No. 2, pp. 157-176.
Odean, T. (1998). Are Investors Reluctant to Realize Their Losses? Journal of Finance, vol. 53, No. 5, pp. 1775-1798.
Oehler, A. (1992). "Anomalien", "Trationalitäten" oder "Biases" der Erwartungsnutzentheorie und ihre Relevanz für Finanzmärkte. Zeitschrift für Bankrecht und Bankwirtschaft, vol. 4, No. 2, pp. 97-124.
Oxford Dictionary (2018). risk. Consulted from: https://en.oxforddictionaries.com/definition/risk.
Rapp, H. (2000). "Der tägliche Wahnsinn hat Methode – Behavioral Finance: Paradigmenwechsel in der Kapitalmarktforschung". Jünemann, B. and Schellenberger, D. (editors), Psychologie für Börsenprofis – Die Macht der Gefühle bei der Geldanlage, Schäffer-Poeschel, Stuttgart, pp. 76-108.
Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, vol. 19, No. 3, pp. 425-442.
Shefrin, H. and M. Statman (1985). The Disposition to Sell Winners Too Early and Ride Losers Too Long. Journal of Finance, vol. 40, No. 3, pp. 777-790.
Shiller, R. J. (1981). Do Stock Prices Move too Much to be Justified by Subsequent Changes in Dividends? The American Economic Review, vol. 71, No. 3, pp. 421-436.
Simon, H. A. (1959). Theories of Decision-Making in Economics and Behavioral Science, The American Economic Review, vol. 49, No. 3, pp. 253-283.
Simon, H. A. (1955). A Behavioral Model of Rational Choice, Quarterly Journal of Economics, vol. 69, No. 1, pp. 99-118.
Stigler, G. J. and G. S. Becker (1977). De Gustibus Non Est Disputandum. American Economic Review, vol. 67, No. 2, pp. 76-90.
Thaler, R. H. (2000). From Homo Economics to Homo Sapiens. Journal of Economic Perspectives, vol. 14, No. 1, pp. 133-141.
Von Neumann, J. and O. Morgenstern (1947). Theory of Games and Economic Behavior. 2nd ed., Princeton University Press, Princeton.
Detalles del artículo
Esta obra está bajo una licencia internacional Creative Commons Atribución-NoComercial 4.0.
Contenido principal del artículo
With respect to the concept of risk preferences the Neoclassical Capital Market Theory assumes stable and homogeneous ones. On the contrary, the Behavioral Finance Theory supposes variable and heterogeneous preferences. In the light of this conflict the research objective of the present paper is to determine the risk preferences of undergraduate students of the Autonomous University of Queretaro within the financial decision-making process using an experimental study design. Performing two simple experiments with a total of 146 participants the following main results were obtained: The majority of students clearly show heterogeneous risk preferences which were also adapted to varying decision situations – a result that clearly contradicts the position of the Neoclassical Theories. Based on the results of the study it is recommended to further strengthen the position of behavioral concepts in the areas of financial teaching and research in order to better understand the financial decision-making process on a capital market and enterprise level.
Akerlof, G. A. and R. J. shiller (2009). Animal Spirits-How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton University Press, Princeton.
Banerjee, A. V. (1992). A Simple Model of Herd Behavior. Quarterly Journal of Economics, vol. 107, No. 3, pp. 797-817.
Beauchamp, J. P.; D. Cesarini and M. Johannesson (2017). The Psychometric and Empirical Properties of Measures of Risk Preferences. Journal of Risk and Uncertainty, vol. 54, No. 3, pp. 203-237.
Bernard G. (1984). "Utility and Risk Preference Functions". Hagen O. and Wenstop F. (editors), Progress in Utility and Risk Theory. D. Reidel Publishing Company Dordrecht, Holland, pp. 135-143.
Bernoulli, D. (1738). Specimen Theoriae Novae de Mensura Sortis, Commentarii academiae scientiarum imperialis Petropolitanae, pp. 175-192. Translation to English by Sommer, L. (1954) Expedition of a New Theory on the Management of Risk. Econometrica, vol. 22, No. 1, pp. 23-36.
Besley, S. and E. F. Brigham (2009). Fundamentos de Administracion Financiera. 14th ed., Cengage Learning, Mexico City.
Black, F. (1986). Noise. Journal of Finance, vol. 41, No. 3, pp. 529-543.
Brown, K. C.; W. V. Harlow and S. M. Tinik (1988). Risk Aversion, Uncertain Information, and Market Efficiency. Journal of Financial Economics, vol. 22, No. 2, pp. 355-385.
Conte, A., Levati, M. V. and Nardi, C. (2018). Risk Preference and the Role of Emotions. Economica, vol. 85, No. 338, pp. 305-328.
De Bondt, W. (2005). "Bubble Psychology". Hunter, W. C., Kaufman, G. G. and Pomerleano, M. (editors), Asset Price Bubbles - The Implications for Monetary, Regulatory and Institutional Policies. The MIT Press, Cambridge, London, pp. 205-216.
De Bondt, W. and R. Thaler (1985). Does the Stock Market Overreact? Journal of Finance, vol. 40, No. 3, pp. 793-805.
Demmler, M. (2017). Irrationality of Asset Price Bubbles-Human Decision-Making in the Course of Financial Bubbles. Pearson Education de Mexico, Mexico City.
Dohmen, T.; A. Falk; D. Huffman and U. Sunde (2012). The Intergenerational Transmission of Risk and Trust Attitudes. Review of Economic Studies, vol. 79, No. 2, pp. 645-677.
Duncan, J. (1984). Selective attention and the organization of visual information. Journal of Experimental Psychology: General, vol., 113, No. 4, pp. 501-517.
Falk, A. and J. J. Heckman (2009). Lab Experiments Are a Major Source of Knowledge in the Social Sciences. Science, vol. 326, issue 5952, pp. 535-538.
Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, vol. 25, No. 2, pp. 383-417.
Fox, C. R. and D. Tannenbaum (2011). The elusive search of stable risk preferences. Frontiers in Psychology, vol. 2, article 298, pp. 1-4.
Gitman, L. J. and C. J. Zutter (2012). Principles de Administracion Financiera. 12. ed., Pearson Education de Mexico, Atlacomulco, Mexico.
Grether, D. M. (1980). Bayes rule as a descriptive model: The representativeness heuristic. The Quarterly Journal of Economics, vol 95, No. 3, pp. 537-557.
Ho, T. S. Y. and S. B. Lee (2004). The Oxford Guide to Financial Modeling-Applications for Capital Markets, Corporate Finance, Risk Management, and Financial Institutions. Oxford University Press, New York.
INEGI (2005). Curso de Metodologia de la Investigacion. Consulted from: http://www.inegi.org.mx/inegi/spc/doc/INTERNET/22-%20CURSO%20DE%20METODOLOG%C3%8DA%20DE%20LA%20INVESTIGACT%C3%93N.pdf.
ISO (2018). ISO 31000:2018(en) Risk management-Guidelines. Consulted from: https://www.iso.org/obp/ui#isos:std:iso:31000:ed-2:v1:en.
Kahneman, D.; J. L. Knetsch and R. H. Thaler (1991). Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. Journal of Economic Perspectives, vol. 5, No. 1, pp. 193-206.
Kahneman, D. and A. Tversky (1979). Prospect Theory: An Analysis of Decision Under Risk. Econometrica, vol. 47, No. 2, pp. 263-291.
Kandasamy, N.; B. Hardy Pagec, L.; M. Schaffner; J. Graggaber; A. S. Powlson; P. C. Fletcher; M. Gurnell, and J. Coates (2014). Cortisol Shifts Financial Risk Preferences. PNAS, vol. 111, No. 9, pp. 3608-3613.
Lo, A. W. (2017). Adaptive Markets-Financial Evolution at the Speed of Thought. Princeton University Press, Princeton.
Lo, A. W. (2004). The Adaptive Market Hypothesis-Market Efficiency from an Evolutionary Perspective. Journal of Portfolio Management, vol. 30, No. 5, 30th Anniversary Issue, pp. 15-29.
Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics, vol. 47, No. 1, pp. 13-37.
Markowitz, H. M. (1952). Portfolio Selection. Journal of Finance, vol. 7, No. 1, pp. 77-91.
Moore, D. A. and P. J. Healy (2008). The trouble with overconfidence. Psychological Review, vol. 115, No. 2, pp. 502-517.
Morgan, M. S. (2006). Economic Man as Model Man-Ideal Types, Idealization and Caricatures. Journal of History of Economic Thought, vol. 28, No. 1, pp. 1-27.
Mossin, J. (1966). Equilibrium in a Capital Asset Market. Econometrica, vol. 34, No. 4, pp. 768-783.
Mylrea, K. and J. Lattimore (2010). "How to create and use corporate risk tolerance". Fraser, J. and Simkins, B. J. (editors), Enterprise Risk Management-Today's Leading Research and Best Practices for Tomorrow's Executives. John Wiley & Sons, Hoboken, New Jersey, pp. 143-154.
Nicholson, N.; E. Soane; M. Fenton-O'Creevy and P. Willman (2005). Personality and domain-specific risk taking. Journal of Risk Research, vol. 8, No. 2, pp. 157-176.
Odean, T. (1998). Are Investors Reluctant to Realize Their Losses? Journal of Finance, vol. 53, No. 5, pp. 1775-1798.
Oehler, A. (1992). "Anomalien", "Trationalitäten" oder "Biases" der Erwartungsnutzentheorie und ihre Relevanz für Finanzmärkte. Zeitschrift für Bankrecht und Bankwirtschaft, vol. 4, No. 2, pp. 97-124.
Oxford Dictionary (2018). risk. Consulted from: https://en.oxforddictionaries.com/definition/risk.
Rapp, H. (2000). "Der tägliche Wahnsinn hat Methode – Behavioral Finance: Paradigmenwechsel in der Kapitalmarktforschung". Jünemann, B. and Schellenberger, D. (editors), Psychologie für Börsenprofis – Die Macht der Gefühle bei der Geldanlage, Schäffer-Poeschel, Stuttgart, pp. 76-108.
Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, vol. 19, No. 3, pp. 425-442.
Shefrin, H. and M. Statman (1985). The Disposition to Sell Winners Too Early and Ride Losers Too Long. Journal of Finance, vol. 40, No. 3, pp. 777-790.
Shiller, R. J. (1981). Do Stock Prices Move too Much to be Justified by Subsequent Changes in Dividends? The American Economic Review, vol. 71, No. 3, pp. 421-436.
Simon, H. A. (1959). Theories of Decision-Making in Economics and Behavioral Science, The American Economic Review, vol. 49, No. 3, pp. 253-283.
Simon, H. A. (1955). A Behavioral Model of Rational Choice, Quarterly Journal of Economics, vol. 69, No. 1, pp. 99-118.
Stigler, G. J. and G. S. Becker (1977). De Gustibus Non Est Disputandum. American Economic Review, vol. 67, No. 2, pp. 76-90.
Thaler, R. H. (2000). From Homo Economics to Homo Sapiens. Journal of Economic Perspectives, vol. 14, No. 1, pp. 133-141.
Von Neumann, J. and O. Morgenstern (1947). Theory of Games and Economic Behavior. 2nd ed., Princeton University Press, Princeton.
Detalles del artículo
Esta obra está bajo una licencia internacional Creative Commons Atribución-NoComercial 4.0.