Biased or unbiased risk tolerance in the financial decision making

The authors presents an interesting insight into how individual attitudes to risk – risk tolerance – can be evaluated. The authors investigate the emotional side to risk-taking behaviour, focusing on various subjective obstacles that may restrict individuals’ ability to take conscious investment and debt decisions. Using an empirical cross-disciplinary approach, they mix financial competences with others derived from psychology and affective neuroscience. The authors use a variety of tests on a sample of 176 individuals with different levels of financial education/competence including traders, bankers, and bank customers. Overall they find that individuals who have a stronger knowledge of financial products tend to have greater self-evaluated risk tolerance. The measurement of bank risk has become one of the most topical areas of banking research, especially post-crisis.