The Disappointment Dilemma: The Role of Expectation Proclivity and Disappointment Aversion in Describing Financial Risk Aversion and Financial Risk-Taking Behavior

Written By: John E. Grable, and Eun-Jin Kwak

This paper adds to the existing literature on financial risk aversion and risk taking by testing the possibility that a person’s degree of disappointment aversion, as an anticipatory emotion, may be an antecedent of risk-taking behavior. In this regard, the purpose of this paper is to introduce two interrelated measures—the expectation-proclivity scale and the disappointment-aversion scale—and to establish the empirical association between expectation-proclivity and disappointment-aversion scale scores and financial risk aversion and financial risk taking. Results from this study show that disappointment aversion is positively associated with financial risk aversion, whereas establishing high outcome expectations is negatively related with financial risk aversion. Additionally, findings show that disappointment aversion and expectation proclivity are inversely related. Findings from this study provide support for what is termed in this paper the disappointment dilemma hypothesis. Specifically, financial decision-makers who are averse to disappointment may be prone to allocating assets and investment dollars in ways that minimize or avoid disappointment in the short-run, but by doing so, may regret risk-avoiding behavior in the future.