The relationship between psychopathy and financial risk and time preferences

Abstract

Purpose

The purpose of this paper is to examine the relationship between psychopathy and its underlying traits and financial risk and time preferences.

Design/methodology/approach

The authors measure risk and time preferences using both the cumulative prospect theory and quasi-hyperbolic time discounting in a sample of business majors. The Psychopathic Personality Inventory – Revised test is then used to measure the global psychopathy and eight primary and two secondary traits of the sample of business majors. The measures of psychopathy are used as explanatory variables to model variation in subjects’ time and risk preferences.

Findings

The authors find that the overall score on the continuum of psychopathy is positively related to the linearity of the cumulative prospective utility function. A breakdown of psychopathy into its secondary and primary traits shows a more complex relation. For example, the secondary trait of self-centered impulsivity is statistically significant in models of financial risk preference determinants under the cumulative prospect theory. The authors find that the primary traits of self-centered impulsivity and stress immunity are related to a higher time preference discount rate under quasi-hyperbolic time preferences.

Originality/value

This paper adds to the literature on personality and financial decisions and highlights the importance of psychopathy in finance.

Citation

Shank, C.A., Dupoyet, B., Durand, R. and Patterson, F. (2021), "The relationship between psychopathy and financial risk and time preferences", Studies in Economics and Finance, Vol. 38 No. 1, pp. 32-49. https://doi.org/10.1108/SEF-11-2019-0435