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An Analysis of Risk Assessment Questions Based on Loss-Averse Preferences

An Analysis of Risk Assessment Questions Based on Loss-Averse Preferences <p>A variety of risk assessment questionnaires are used within the financial planning profession to assess client risk preferences. Evidence indicates that the average person overweighs losses relative to an arbitrary reference point. This paper evaluated risk assessment questions on how well they correlate with monetary loss aversion. Twenty-nine Western Texas residents between the ages of 27 and 56 participated in experimental research and filled out several risk assessment questionnaires. Two weeks later their levels of loss aversion were measured using monetary gain and loss scenarios. The individual risk assessment questions were placed into three categories: expected utility theory, prospect theory and self-assessment. Composite measures were created for within-group and between-group comparisons. Statistically significant correlations were found between monetary loss aversion and different composite measures. The results provide financial planners with a group of risk assessment questions that capture loss-averse preferences.</p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Counseling and Planning Springer Publishing

An Analysis of Risk Assessment Questions Based on Loss-Averse Preferences

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Publisher
Springer Publishing
ISSN
1052-3073
eISSN
1947-7910
DOI
10.1891/1052-3073.26.1.17
Publisher site
See Article on Publisher Site

Abstract

<p>A variety of risk assessment questionnaires are used within the financial planning profession to assess client risk preferences. Evidence indicates that the average person overweighs losses relative to an arbitrary reference point. This paper evaluated risk assessment questions on how well they correlate with monetary loss aversion. Twenty-nine Western Texas residents between the ages of 27 and 56 participated in experimental research and filled out several risk assessment questionnaires. Two weeks later their levels of loss aversion were measured using monetary gain and loss scenarios. The individual risk assessment questions were placed into three categories: expected utility theory, prospect theory and self-assessment. Composite measures were created for within-group and between-group comparisons. Statistically significant correlations were found between monetary loss aversion and different composite measures. The results provide financial planners with a group of risk assessment questions that capture loss-averse preferences.</p>

Journal

Journal of Financial Counseling and PlanningSpringer Publishing

Published: Mar 1, 2015

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