A Review of the Psychology of Risk-Taking Behavior for Individual Investors

Abstract

This paper reviews the extensive literature within psychology and behavioral finance in order to outline the psychological underpinnings of investor risk behavior. Its objective is to provide a comprehensive understanding of the factors that influence risk propensity in investment markets. It provides an enumeration of influential factors that play a role in understanding an individual’s propensity for risk including psychological biases, personality characteristics, demographic and socio-economic factors. Such a list should be valuable, not only to researchers in behavioral finance, but also to practitioners interested in improving trading skills and recruitment practices.