Prior Perceptions, Personality Characteristics and Portfolio Preferences among Fund Managers: An Experimental Analysis

Abstract

This article examines the question of cross-domain risk-taking behavior. That is, will risky behavior in one arena translate into risky behavior in another arena? The specific area of interest concerns lifestyle risk taking and financial risk-taking behavior. We utilize several psychological tests to test the respondents for the following biases: familiarity, optimism, unique invulnerability, sensation-seeking and impulsivity. The methodology utilizes tests that have not been employed in other studies. The respondents were given these tests plus a portfolio preference survey to test for effects on investing decisions. Two cohorts of student-managed investment fund managers were surveyed. These were predominantly twenty-something males who were college seniors. These subjects were chosen for two reasons: they represented a risk-taking population in general and they were sophisticated investors. We found no discernible biases present in their survey results. We also tested the mean responses to the portfolio management survey across the two cohorts, which occurred around the subprime market crash. Interestingly, the mean responses of the portfolio choice variables were not statistically different.

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