Risk Preference Elicitation and the Role of Personality and Intelligence

Abstract

Abstract : Risk tolerance metrics are consistently used in economics experiments as a means to inform researchers how the aggregation of individual choices affects market, organizational, or financial outcomes. Economic theory, however, is silent on their use as a predictive metric for ascertaining why individuals exhibit a particular risk preference. Insight as to the possible drivers of why individuals exhibit a given risk preference may lie in the cognitive and noncognitive characteristics embodied in an individual. The key hypothesis of the proposed effort is to ascertain if a correlation between risk and personality exists and, if so, to what extent do certain traits influence risk preference. The findings of this study show indicate no statistical relationship between intelligence, as proxied by self-reported GPA, and risk preference. The results do indicate a weak relationship between risk preference and personality constructs. Increasing the sample size, clearer instructions on the risk preference elicitation game, and expanding the relative risk categorization from 3 to 8 categories may yield more robust measures of personality and risk. The correlations, intended to populate an intelligent agent simulation system, are not sufficiently robust to provide valid information to code human behaviors into FUTURE's agent-based system. In an attempt to overcome the deficits in the current experimental design and outcomes, the subject pool will be expanded by an additional 300 observations. The experimental design discussed in this report will be modified not only to capture a broader subject pool demographic, but will use an eight-category relative risk preference elicitation measure.