Results on the investment side

The chapter describes a unique empirical research which involved more than 450 individuals: banks’ customers, traders and asset managers. We introduced traditional and innovative measures of risk tolerance. The most innovative is a measure of the ‘unbiased risk tolerance’ (UR) of individuals, which is fundamentally the attraction or aversion to risk shown during the controlled experiment (IGT) aimed at observing both the choices and the uncontrolled (somatic) responses to risky decisions. The research compares the unbiased risk tolerance with both a measure for the biased risk tolerance (BR), obtained by a financial risk tolerance self-evaluation test and a measure of the risk tolerance shown in real life investment/decision choices (RLR). Any difference between UR and BR shows whether individuals are able to properly self-evaluate their risk tolerance or not, and if they over/under value their personal capability to afford financial risk. The comparisons among UR, BR and RLR are essential to understand what drives real life risk taking behaviour: either who we are or who we suppose to be. Results on the investment are relevant and a set of demographic, socio economic and cultural reasons explain incoherencies among UR, BR and RLR. The major finding is that many individuals think to be, and act, as risk averters but they simultaneously and unconsciously appear to be risk lovers. When this condition occurs, the unbiased risk is much higher than the risk assumed in real life but, at the same time, it is higher than the self evaluation. We state, in this case, the presence of an ‘unconscious sleeping factor’. It varies for different individual subsamples. We discover groups of people whose sleeping factor is completely absent, at least in the ‘financial domain’: this was confirmed for people who have a financial profession, like traders and asset managers. On the contrary, some other groups seem to be strongly affected by the sleeping factor. This feature is strong for old people (a long life cycle of risk tolerance is uncovered), for those who are widowed or divorced, for people who seldom acquire financial information, with low financial knowledge, for those who do not read news regularly, and also for those who take quick investment decisions. It is also strong for those with low self-trust.