Eliciting risk preferences experimentally versus using a general risk question: Does financial literacy bridge the gap?

Artikel

The study investigates the stability of financial risk preference choices elicited from subjects by way of two methods, namely: experimentally elicited incentivized revealed risk preferences (IRRP) and (self-reported) perceived willingness to take a financial risk (PWTFR). The research further examines whether financial literacy (a human capital aspect) helps in reducing the gap between IRRP and PWTFR choices made by subjects. A total of 193 university students (where 53% were female) participated in the study. The subjects completed IRRP choices from four multiple price list (MPL) risk preference tasks and a financial literacy questionnaire. There is a tendency to anchor at extremes of risk-seeking behavior when subjects self-report their PWTFR choices. A paired t-test analysis of the two methods shows that the average responses from the two methods are significantly different. A random effect (RE) panel regression shows that an increase in financial literacy narrows the gap between IRRP and PWTFR choices. The study's findings show that responses by subjects from a PWTFR general risk question (GRQ) and IRRP experiment are unstable and inconsistent. What people say in a survey does not always translate into what they do when faced with a risk preference choice dilemma. Financial literacy helps individuals to predict their risk attitudes more precisely.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Risks ; ISSN: 2227-9091 ; Volume: 9 ; Year: 2021 ; Issue: 8 ; Pages: 1-16 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Relation of Economics to Social Values ; Design of Experiments: Laboratory, Individual ; Welfare, Well-Being, and Poverty: General
• Subject: financial literacy ; general risk question ; incentivized revealed risk preferences ; perceived financial risk ; risk tolerance gap ; theory comparison approach

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mudzingiri, Calvin ; Koumba, Ur
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2021

Further information

• DOI: doi:10.3390/risks9080140
• Handle: http://hdl.handle.net/10419/258224
• Last update: 10.03.2025, 11:42 AM CET