Does Financial Investment Decision-Making Relate To Risk Tolerance? Evidence from the United States
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The intolerance of uncertainty scale (IUS), which measures individual differences, may have a moderating effect on how investors allocate their portfolios among securities with varying risk levels. This study explores this possibility. The study’s participants decided how much money to put into securities with varying risk profiles. The securities ranged from government securities (safe) to more risky securities. The investment risk of each security is manipulated by altering beta or market risk, expected return, and standard deviation of the return. The findings show that less risk-tolerant individuals invested less capital in riskier stocks and more money in safer government securities. However, those with more risk tolerance exploited more money in the less hazardous investment. As anticipated, those with less risk tolerance allocated more capital to the more secure stocks.
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