Impact of personality on risk tolerance

Abstract

Risk Tolerance plays an important role in the investment decisions that individuals make. It is defined as the degree of variability in investment returns that an investor is willing to withstand in their financial planning. This study investigates the impact of personality traits on risk tolerance. The personality traits chosen based on the Big Five Model and included openness, extraversion, conscientiousness, neuroticism and agreeableness. The study utilises a quantitative research methodology. A survey was circulated among individuals with a background in finance in India. It was hypothesised that there would be some relationship between the Big Five Traits and Risk tolerance. A correlational analysis was conducted to examine the same. No significant relationships were found between each of the Big Five Traits and Risk tolerance. The possible reasons for the same are discussed.