New Assessments of Risk Tolerance could Massively Benefit Stock Market

Most investors need to take more risks in their financial investments.

Current financial service culture is weighted toward providing conservative solutions to people's investment needs but researchers from the University of Warwick's Institute of Applied Cognitive Science have devised a new method of obtaining a very precise understanding of a consumer's tolerance of risk. Professor Nick Chater and Dr Neil Stewart have developed a new theory of how people make risky decisions.

The researchers are developing models of "financial personalities" which give a much better understanding of how people's decision-making processes work. They will also explore how consumers are influenced by the contexts in which they take financial decisions. This will help people to improve their financial decisions and banks to improve their services.

By helping people make decisions that match more closely their real level of tolerance of risk, individuals come to much less conservative assessments of which financial products are best for them and analysts believe that, if widely used, the resultant increased level of confidence in risk taking could substantially boost financial markets.