The effect of success/failure priming on financial risk tolerance

Abstract

Previous research has demonstrated the effects of unconscious priming on conscious \nthoughts, behaviours and decisions. The present study was designed to examine the \neffects of priming individuals with the concepts of success or failure on their subsequent \nfinancial risk tolerance. This study also investigated the relationship between financial \nrisk tolerance and dispositional optimism, and assessed the efficacy of using demographic \nvariables to classify investors into risk tolerance categories. Participants for the study \nwere first randomly assigned to one of three groups, and then asked to complete a \nscrambled sentence test intended to influence their financial risk tolerance. The first \ngroup’s sentences included words expected to activate the concept of success, the second \ngroup’s sentences included words expected to activate the concept of failure, while the \nthird group were given random sentences to provide a baseline for comparison. Once \nprimed by the scrambled sentence test, participants completed the Grable and Lytton Risk \nTolerance Survey to measure their financial risk tolerance and the Revised Life \nOrientation Test to measure their dispositional optimism. Although the effects of priming \nindividuals with the concepts of success and failure were not found to be statistically \nsignificant, differences were discovered in the way that men and women reacted to the \npriming intervention, which may help to explain the difference in the way men and \nwomen approach risk. The results also suggest that there is a positive correlation between \ndispositional optimism and financial risk tolerance, particularly for men. This study \nconfirmed the findings of previous research, that men were willing to accept significantly more financial risk than women, but found no significant relationship between financial \nrisk tolerance and age. Author keywords: Priming, finance, risk tolerance, success failure, dispositional optimism

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