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Dimensionality of risk perception: factors affecting consumer understanding and evaluation of financial risk

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Vlaev, Ivo, Chater, Nick and Stewart, Neil. (2009) Dimensionality of risk perception: factors affecting consumer understanding and evaluation of financial risk. Journal of Behavioral Finance, Vol.10 (No.3). pp. 158-181. ISSN 1542-7560

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Official URL: http://dx.doi.org/10.1080/15427560903167720

Abstract

This article describes two studies of the factors affecting consumer understanding of financial risk. The first study investigated factors affecting people's perception and comprehension of information about the risks related to retirement investments. First, we asked respondents to list possible risk factors related to investment in a pension plan. Then we obtained ratings of different factors (e.g., the perceived level of knowledge about an investment) that could affect perception of the risk of financial products and retirement investment decisions. Finally, we asked the subjects to rate 11 different descriptions presenting risk information about the same financial product. The risk information framing that received highest rating presented risk as variation between minimum and maximum values with an average in between. The second study demonstrated the risk framing that received highest ranking also prompted more stable risk preferences over a 3-month testing period in comparison to standard measures of risk aversion. Thus, the second study corroborated the importance of the findings in the first study and also indicated that, although people can exhibit stable risk preferences if we ask them the right questions, these preferences were very specific to the risk domain.

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management B Philosophy. Psychology. Religion > BF Psychology
Divisions:	Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Science > Psychology Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Risk perception -- Research, Financial risk -- Research, Finance, Personal, Consumers -- Attitudes
Journal or Publication Title:	Journal of Behavioral Finance
Publisher:	Routledge
ISSN:	1542-7560
Date:	July 2009
Volume:	Vol.10
Number:	No.3
Number of Pages:	24
Page Range:	pp. 158-181
Identification Number:	10.1080/15427560903167720
Status:	Peer Reviewed
Access rights to Published version:	Restricted or Subscription Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC), Actuarial Profession (Organization : Great Britain) (AP), Institute of Actuaries (Great Britain) (IoA)
Grant number:	R000239351 (ESRC)
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URI:	http://wrap.warwick.ac.uk/id/eprint/2537