Welcome to the 2018 AFS Annual Meeting, being held this year, in conjunction with FPA in Chicago!
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Tuesday, October 2 • 9:00am - 9:50am
B1a - Measuring Relative Risk Tolerance: A Cautionary Tale [CFP Risk Assessment]

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Financial planners are increasingly being asked by regulators and practice standard boards to evaluate the relative risk tolerance of their clients. Two approaches dominate the evaluation process: economic and psychometric measures. This study was designed to answer the following questions: (a) what is the strength of association between economic and psychometric relative risk tolerance measures? (b) which assessment technique is statistically associated with financial planning proficiencies? and (c) which method of assessment provides a better description of financial planning behavior? Results suggest that while the two measurement approaches are positively correlated, the effect size of the association is modest. The key finding from the study is that only the psychometric approach was related to financial risk taking behaviors. Based on the findings, it was determined that the psychometric assessment approach may be better suited to evaluate situations in which uncertainty and subjective probabilities are the norm.

Author(s): John Grable, Narang Park

avatar for John Grable

John Grable

Professor, University of Georgia
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Tuesday October 2, 2018 9:00am - 9:50am CDT
Michigan 1A

Attendees (4)