Hanna, Gutter & Fan

Hanna, S. D., Gutter, M. S.& Fan, J. X.(2001). A
measure of risk tolerance based on economic theory.
Financial Counseling and Planning, 12(2), 53-60.

Measure of Risk Tolerance Based on Economic Theory

D. Hanna1
S. Gutter2
Jessie X. Fan3

Self-reported risk tolerance
is a measurement of an individual’s willingness to accept risk, making
it a valuable tool for financial planners and researchers alike. Prior
subjective risk tolerance measures have lacked a rigorous connection to
economic theory. This study presents an improved measurement of subjective
risk tolerance based on economic theory and discusses its link to relative
risk aversion. Results from a web-based survey are presented and compared
with results from previous studies using other risk tolerance measurements.
The new measure allows for a wider possible range of risk tolerance to
be obtained, with important implications for short-term investing.

Key words: Risk tolerance,
Risk aversion, Economic model

Acrobat file of article

1. Sherman D. Hanna, Professor, Consumer Sciences Department,
The Ohio State University, 1787 Neil Ave., Columbus, OH 43210-1295. Phone:
614-292-4584. Fax: 603-457-6577. E-mail: hanna.1@osu.edu

2. Michael S. Gutter, Assistant Professor, Department of Consumer Science,
University of Wisconsin-Madison, 1300 Linden Drive Room 370F Phone: 608-262-5498
Fax: 608-265-6048. Email: msgutter@facstaff.wisc.edu

3.  Jessie X. Fan, Associate Professor, Department
of Family and Consumer Studies, University of Utah, 225 South 1400 East,
Room 228 AEB, Salt Lake City, UT 84112-0080. Phone: 801-581-4170. Fax:
801-581-5156. E-mail: fan@fcs.utah.edu

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