Utility Function and Risk Taking: An Experiment
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CitationOkay, E., Taşpınar, D. (2006), Utility Function and Risk Taking: An Experiment, The Journal of American Academy of Business, (2006), 9(2): 514-526
Investing by its very nature is an emotional business. Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of uncertainty. The main purpose of this study is to examine the style of financial risk taking, and in particular the psychological profiles associated with different risk taking behaviours. Behavioural economics and finance increases the explanatory power of models by providing it with more realistic psychological foundations. The assumption of behavioural risk taking leads to three fundamental approaches to risk: Risk avoiders abstain from investments they perceive to contain risk, risk reducers participate in high risk investments in spite of the risks involved, and risk optimisers who are motivated by the exposure to risk. This study identifies and characterizes individual investors based on their shared investing attitudes and behaviour. It finds out evidence of a behavioural search for investments based on a questionnaire approach suggested by LeBaron, Farrelly and Gula (1989). The approach to risk is studied by a psychometric measure, "Risk Assessment Inventory" prepared for the Turkish investors. The research data is analyzed using statistical techniques, namely frequency, percent, arithmetic mean, chi-square independent test, non¬linear principle component analysis and t-test. The result of the research data have shown that there are not much significant differences between the variables related to the amount of investment when they are analyzed with respect to the dimensions of risk assessments.
SourceThe Journal of American Academy of Business
- Makale Koleksiyonu