The effect of success/failure priming on financial risk tolerance

Abstract

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