Do sensation seeking, control orientation, ambiguity, and dishonesty traits affect financial risk tolerance?

Abstract

Purpose

The purpose of this paper is to determine relationships between financial risk tolerance and the personality traits of sensation-seeking, locus of control, ambiguity tolerance, and financial dishonesty.

Design/methodology/approach

A pretested questionnaire was used to gather information from 255 respondents. With risk tolerance as a criterion variable and the four personality traits as predictor variables, a regression procedure was performed to determine which variables contributed to the variability of the criterion variable and the extent of such contribution. An analysis was also done to find out whether gender, age, GPA, and academic standing had an influence on each personality trait’s contribution to risk tolerance.

Findings

Risk tolerance is directly related to sensation-seeking and the link is so strong that it is not mitigated by the effects of gender, age, GPA, and college academic standings. As for locus of control, the more one believes one has control over one’s outcome, the higher risk one can tolerate. Surprisingly, there is no relationship between risk and ambiguity tolerances. Dishonesty also does not affect risk tolerance behavior. However, the relationship is found to exist among younger individuals and those with lower GPA, possibly due to not having reached an adequate level of matured or critical reasoning yet.

Originality/value

The relationship between risk tolerance and sensation-seeking is an established fact but whether the relationship still holds across several demographic groups is part of this study’s focus. Although much has been done on risk tolerance, very little has been done on its relationship to locus of control, ambiguity tolerance, and financial dishonesty.

Citation

Wong, A. and Carducci, B. (2015), "Do sensation seeking, control orientation, ambiguity, and dishonesty traits affect financial risk tolerance?", Managerial Finance, Vol. 42 No. 1, pp. 34-41. https://doi.org/10.1108/MF-09-2015-0256