Predicting Financial Risk Tolerance and Risk-Taking Behaviour: A Comparison of Questionnaires and Tests

The purpose of this study was to compare and contrast the concurrent, convergent, and predictive validity of a variety of risk tolerance tests and questionnaires. The tested measures represent tests and scales derived from economic and psychometric theory. It was determined that tests based on economic theory had similar predictive power, implying that economic measures provided some degree of convergent validity across measures. Only the psychometric risk tolerance measure, however, was found to be correlated to other indicators of risk tolerance and risk-taking. Results from this exploratory study suggest that a questionnaire developed using psychometric theory appears to offer superior predictive insight into financial risk-taking, at least when compared across the measurement techniques examined in this study.