What Drives Risk Perception? A Global Survey with Financial Professionals and Lay People

Felix Holzmeister, Jürgen Huber, Michael Kirchler, Florian Lindner, Utz Weitzel, Stefan Zeisberger

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Risk is an integral part of many economic decisions, and is vitally important in finance. Despite extensive research on decision-making under risk, little is known about how risks are actually perceived by financial professionals, the key players in global financial markets. In a large-scale survey experiment with 2,213 finance professionals and 4,559 lay people in nine countries representing ~50% of the world's population and more than 60% of the world's gross domestic product, we expose participants to return distributions with equal expected return and we systematically vary the distributions' next three higher moments. Of these, skewness is the only moment that systematically affects financial professionals' perception of financial risk. Strikingly, variance does not influence risk perception, even though return volatility is the most common risk measure in finance in both academia and the industry. When testing other, compound risk measures, the probability to experience losses is the strongest predictor of what is perceived as being risky. Analyzing professionals' propensity to invest, skewness and loss probability also have strong predictive power, while volatility and kurtosis have some additional effect. Our results are very similar for lay people, and they are robust across and within countries with different cultural backgrounds as well as for different job fields of professionals.
Original languageEnglish
JournalManagement Science
Publication statusAccepted/In press - 2019

Fingerprint

Risk perception
Global survey
Finance
Skewness
Risk measures
Experiment
Predictive power
Integral
Testing
Expected returns
Financial risk
Predictors
Gross domestic product
Industry
Return distribution
Decision making under risk
Kurtosis
Economics
International financial markets
Return volatility

Cite this

Holzmeister, F., Huber, J., Kirchler, M., Lindner, F., Weitzel, U., & Zeisberger, S. (Accepted/In press). What Drives Risk Perception? A Global Survey with Financial Professionals and Lay People. Management Science.
Holzmeister, Felix ; Huber, Jürgen ; Kirchler, Michael ; Lindner, Florian ; Weitzel, Utz ; Zeisberger, Stefan. / What Drives Risk Perception? A Global Survey with Financial Professionals and Lay People. In: Management Science. 2019.
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What Drives Risk Perception? A Global Survey with Financial Professionals and Lay People. / Holzmeister, Felix; Huber, Jürgen; Kirchler, Michael; Lindner, Florian; Weitzel, Utz; Zeisberger, Stefan.

In: Management Science, 2019.

Research output: Contribution to JournalArticleAcademicpeer-review

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