Written By: Sherman D. Hanna and Suzanne Lindamood

This study investigates financial risk aversion using an improved measure based on income gambles and rigorously related to optimal portfolio choices.The new measure modifies a previous measure by adding graphical presentations to clarify the impact of different income choices. We compared the measure’s responses to those of previous non-graphical versions. To enable comparisons to an established risk measure, we also asked the Survey of Consumer Finances (SCF) risk tolerance question. Based on responses from 152 students, there is a significant correlation between relative risk aversion estimates based on the new measure and the SCF question. Keywords: investments, risk tolerance, risk aversion

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