详情
A multidimensional approach to measuring the risk tolerance of households in China
Evidence from the U.S. and Europe suggests that current risk assessment tools used by researchers and
financial professionals to determine individuals’ risk tolerance and provide suitable portfolio recommendations
may be flawed due to “mis”perceptions of risk. Limited research has examined the reliability of these tools as
measures of relative risk tolerance for households in emerging economies like China. This study develops a
multidimensional index of risk tolerance specifically tailored for Chinese households using a psychometric
approach. The effectiveness of this multidimensional index in predicting individuals’ financial decisions is
tested and compared to traditional unidimensional measures of risk tolerance commonly used in developed
countries. The findings indicate that multidimensional measures are more consistent and significant predictors
of Chinese households’ investment decisions. Additionally, the study uncovers evidence that cultural
differences, related to market expectations and social networks, which are often overlooked in U.S. and
European models, play a crucial role in shaping individuals' risk perceptions and investment choices in China.
Robustness checks were conducted to account for potential endogeneity between risk tolerance and investment
decisions. The findings provide valuable insights for researchers and financial professionals seeking to develop
more accurate risk assessment tools that capture risk attitudes and perceptions in China and other developing
countries. By adopting a multidimensional approach that accounts for cultural and psychosocial factors, these
improved tools can enhance the precision of risk evaluation and facilitate more appropriate investment
recommendations.