Interactive Impact of Demographic Variables and Personality Type on Risk Tolerance

Abstract

Investors’ investment decision is much dependent on his/her risk-taking capability, which in turn depends on a variety of factors. Majority of the studies carried out on this topic associate the financial risk tolerance (FRT) with demographics (gender, marital status, age, education income, etc.) of the investor. A handful of the studies on this topic establish a link between FRT and personality type. FRT refers to the investors’ ability to allow the uncertainty of returns while taking their investment decision. Most of the past studies on the related topics have taken Myers-Briggs Type Indicators (MBTI) or big five personality types, whereas the present study has taken Personality type A and B for finding its association with risk tolerance level. Identifying Personality type A and B is much easier and less time-consuming as compared to other models. Hence, in real life, financial planners also can use the outcome of this study in preparing the investment strategy for their clients. Past studies have focused either on demographics or on personality type, while the current study combines the effect of both the variables and adds to the existing literature. The present study adopts a single cross-sectional descriptive research design. To satisfy the objective, required data were gathered through a structured questionnaire with a “Financial Risk Tolerance Scale,” “Personality Scale,” and basic demographic questions using a convenience sampling methodology. An analysis of data indicates that personality type and demographic variables such as gender, marital status, occupation, and income are found significant in determining FRT of investor, while age and education are found insignificant.