Individual expectations, risk perception and preferences in relation to investment decision making

Abstract

Both expectations and preferences with respect to stock returns are put into a model which is estimated for a sample drawn from the Dutch Central Union of Investment Study Clubs in 1987. Our approach differs from most economic research since it makes use of economic-psychological variables concerning future developments of financial and macro-economic factors, as they are expected by the respondents, multiplied by their perceived importance weights. Also, the Pratt-Arrow relative risk aversion measure is applied to estimate the dependence of the return-risk attitude on investor-specific variables. Finally, some conclusions are drawn with respect to investment decision making.