Loss Aversion Implied by a Risk-Based Questionnaire

Abstract

This article uses data from an existing classical risk-based questionnaire to define subgroups of investors that are expected to exhibit a different attitude towards loss. Field research confirms that differences in revealed loss attitude match the model’s prediction even when selecting investors with the same classical risk profile. The study should motivate to define investor profiles based on two coordinates rather than just one, meaning a combination of risk and latitude vis-à-vis losses. Such behavioral investor profiles improve customer centricity, contribute to a long-term relationship and simply increase the likelihood of right-selling individual products.

TOPICS: Wealth management, portfolio theory, risk management