Abstract:
Financial risk tolerance is a crucial determinant of individual choices under risk. Normative economic models, such as expected utility theory, assume individual financial risk tolerance as a constant input into decision-making processes. In contrast, Prospect Theory, part of descriptive models, assumes that the input of financial risk tolerance changes depending on the domain considered: gain or loss. The financial literature has in recent decades explored the influence of numerous drivers on financial risk tolerance, confirming through empirical studies the correlation between multiple factors and the level of financial risk tolerance itself. However, despite the importance of financial risk tolerance in influencing investment choices and decisions under risk, there are several proposed methodologies for its measurement without reaching a consensus about one. Therefore, the purpose of this research is to review the financial literature regarding financial risk tolerance, factors that influence it, and measurement methods. In addition, this work is intended to conduct an empirical study to investigate these issues. In addition, the empirical case deviates from the financial literature by proposing an analysis of decisions regarding supplementary pension plans and the factors that influence them.
