Lead Your Team Personal Growth The Psychology of Financial Risk-Taking

The Psychology of Financial Risk-Taking

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The Psychology of Financial Risk-Taking

Thrill-seeking isn't just about jumping out of airplanes. People willing to take risks in their everyday lives are also more likely to make risky financial decisions, according to a new study.

This tendency may help explain the origins of the current financial crisis, say the European authors of a new study published in the journal Psychological Science in the Public Interest.

The study, conducted by four European academics, examined the psychology of financial decision-making , including the role of perceived risk in making economic choices; how individuals behave in stock and credit markets; and how financial crises affect people’s well-being.

It turns out that the willingness to be a risk-taker is a very important component of financial decision-making.

When we make financial investment or loan decisions without being sure of the outcome, the perceived risk of the decision depends on an individual's personality type, the study showed. People who are extroverted and like excitement are likelier to make riskier decisions than people who are more conscientiousness and experience more frequent anxiety.

“The general implication is that financial crises may have more serious consequences for people who are more likely to take financial risks,” the authors wrote.

Ned Smith
Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.