How Do Personality Traits of Young Adults Affect Their Attitudes to Risk and Investment Decisions?

Abstract

This paper examines the relationship between the Big five personality traits, socio-economic characteristics, and the investment decisions of individuals, with a focus on the decision-making of young adults. The empirical analysis was carried out using data obtained from a survey which identified the young adults’ personality traits, degree of risk aversion and preferred investment strategy. The estimation results show that individuals who are more agreeable have a higher degree of risk aversion. However, men and individuals with higher income are less risk averse, while older individuals in our sample tend to have a higher degree of risk aversion. The estimation results also show that certain personality traits and socio-demographic characteristics significantly affect the choice of individuals’ choice of preferred investment strategy. More extroverted individuals in our sample were identified as more likely to diversify their investment portfolio. However, we find that individuals more open to new experiences are more conservative in their investment decisions and diversify their investment with a lower probability. Considering individual socio-economic characteristics, men are more likely to diversity their investment portfolio and choose a less conservative investment strategy than women. Furthermore, marital and employment status were found to be significantly related to a preference towards a conservative investment strategy.