Top

Journal of Business and Psychology

Published in:

01-12-2009

Intraperson Consistency in Financial Risk Tolerance Assessment: Temporal Stability, Relationship to Total Score, and Effect on Criterion-related Validity

Authors: Michael J. Roszkowski, Michael M. Delaney, David M. Cordell

Published in: Journal of Business and Psychology | Issue 4/2009

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

Purpose

In assessing financial risk tolerance it is common practice to compute an overall score but not the intraperson variability across test items (because the latter is believed to be just error variance). We analyzed (1) the stability of intraperson variability, (2) its correlation to the total score, (3) its moderating effect on validity coefficients, and (4) its relation to internal consistency reliability and test–retest reliability.

Design/Methodology/Approach

Using a standardized measure of financial risk tolerance, we computed (a) sum scores and (b) the average deviation from the person’s average score. The sample consisted of 386 financial advisors (1 administration), 458 of their clients (1 administration), and 30 married couples (2 administrations).

Findings

Intraperson consistency was stable over 45 days (r = .72), but greater variability was associated with higher risk tolerance scores (r = .34–.60). After dichotomization, validity coefficients were only slightly better for the more consistent individuals relative to their less consistent counterparts, but their Cronbach’s alpha was higher. Surprisingly, the two groups did not differ on test–retest reliability.

Implications

Intraperson variability is not mere error variance, but it does not provide information entirely independent of the total score. The difference in Cronbach’s alpha demonstrates that this index is a function of the “traitedness” of the sample on which it is calculated and not just the quality of the assessment device itself.

Originality/Value

The results suggest some value for the including a measure of intraperson variability on scales assessing financial risk tolerance. Moreover, we show a limitation of Cronbach’a alpha.

previous article The Influence of Social Regard on the Customer–Service Firm Relationship: The Moderating Role of Length of Relationship

next article The Moderating Effect of Personality on Employees’ Reactions to Procedural Fairness and Outcome Favorability

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

Alker, H. A. (1972). Is personality situationally specific or intrapsychically consistent? Journal of Personality, 40, 1–16.CrossRef

Austin, E. J., Deary, I. J., Gibson, G. J., McGregor, M. J., & Dent, J. B. (1998). Individual response spread in self-report scales: Personality correlations and consequences. Personality and Individual Differences, 24, 421–438.CrossRef

Baumeister, R. F. (1991). On the stability of variability: Retest reliability of metatraits. Personality and Social Psychology Bulletin, 17, 633–639.CrossRef

Baumeister, R. F., & Tice, D. M. (1988). Metatraits. Journal of Personality, 56, 571–598.CrossRef

Bem, D. J., & Allen, A. (1974). On predicting some of the people some of the time: The search for cross-situational consistencies in behavior. Psychological Review, 81, 506–520.CrossRef

Bi, L., & Montalto, C. P. (2003). Emergency funds and the alternatives. Consumer interests annual, the proceedings of the 49th annual conference. Ames, IA: The American Council on Consumer Interests. Retrieved April 18, 2007, from http://www.consumerinterests.org/files/public/EmergencyFunds_03.pdf.

Biesanz, J. C., & West, S. G. (2000). Personality coherence: Moderating self-other profile agreement and profile consensus. Journal of Personality and Social Psychology, 79, 425–437.CrossRefPubMed

Biesanz, J. C., West, S. G., & Graziano, W. G. (1998). Moderators of self-other agreement: Reconsidering temporal stability in personality. Journal of Personality and Social Psychology, 75, 467–477.CrossRefPubMed

Borkenau, P. (2003). Some persons are more variable than others: Why? A comment on Eid and Langeheine. Measurement: Interdisciplinary Research & Perspectives, 1, 211–213.

Bouchey, P. (2004, July 1). Questionnaire quest: New research shows that standard questionnaires designed to reveal investors’ risk tolerance levels are often flawed or misleading. Financial Planning, 97–99.

Bringle, R. G., Renner, P., Terry, R. L., & Davis, S. (1983). An analysis of situation and person components of jealousy. Journal of Research in Personality, 17, 354–368.CrossRef

Britt, T. W. (1993). Metatraits: Evidence relevant to the validity of the construct and its implications. Journal of Personality and Social Psychology, 65, 554–562.CrossRef

Brown, S. (2003). Behavioral considerations in risk analysis: Creating more accurate private-client profiles. CFA Magazine, 14(5) 50–51.CrossRef

Callan, V. J., & Johnson, M. (2002). Some guidelines for financial planners in measuring and advising clients about their levels of risk tolerance. Journal of Personal Finance, 1(1), 31–44.

Cattell, R. B. (1943). Fluctuation of sentiments and attitudes as a measure of character integration and of temperament. American Journal of Psychology, 56, 195–216.CrossRef

Cervone, D. (2005). Personality architecture: Within-person structures and processes. Annual Review of Psychology, 56, 423–452.CrossRefPubMed

Chamberlain, J. M., Haaga, D. A. F., Thorndike, F. P., & Ahrens, A. H. (2004). Metatraits and assessment of attributional style. Journal of Psychology: Interdisciplinary & Applied, 138, 521–531.CrossRef

Chang, C.-C., DeVaney, S. A., & Chiremba, S. T. (2004). Determinants of subjective and objective risk tolerance. Journal of Personal Finance, 3(3), 53–67.

Chaplin, W. F. (1991). The next generation of moderator research in personality psychology. Journal of Personality, 59, 143–178.CrossRefPubMed

Chaplin, W. F., & Goldberg, L. R. (1984). A failure to replicate the Bem and Allen study of individual differences in cross-situational consistency. Journal of Personality and Social Psychology, 47, 1074–1090.CrossRefPubMed

Coombs, C. H. (1950). The concepts of reliability and homogeneity. Educational and Psychological Measurement, 10, 43–56.CrossRef

Corter, J. E., & Chen, Y.-J. (2006). Do investment risk tolerance attitudes predict portfolio risk? Journal of Business and Psychology, 20, 369–381.CrossRef

Cronbach, L. J. (1951). Coefficient alpha and the internal structure of tests. Psychometrika, 16, 297–334.CrossRef

Cucina, J. M., & Vasilopoulos, N. L. (2005). Nonlinear personality-performance relationships and the spurious moderating effects of traitedness. Journal of Personality, 73, 227–259.CrossRefPubMed

Diener, E., & Larsen, R. J. (1984). Temporal stability and cross-situational consistency of affective, behavioral, and cognitive responses. Journal of Personality and Social Psychology, 47, 871–883.CrossRefPubMed

Dwight, S. A., Wolf, P. P., & Golden, J. H., III. (2002). Metatraits: Enhancing criterion-related validity through the assessment of traitedness. Journal of Applied Social Psychology, 32, 2202–2212.CrossRef

Eid, M., & Langeheine, R. (2003). Separating stable from variable individuals in longitudinal studies by mixture distribution models. Measurement: Interdisciplinary Research & Perspectives, 13, 179–206.CrossRef

Eizenman, D. R., Nesselroade, J. R., Featherman, D. L., & Rowe, J. W. (1997). Intraindividual variability in perceived control in an older sample: The MacArthur successful aging studies. Psychology of Aging, 12, 489–502.CrossRef

Epstein, S. (1984). The stability of behavior across time and situations. In R. A. Zucker, J. A. Aronoff, & A. I. Rabin (Eds.), Personality and the prediction of behavior (pp. 209–268). San Diego, CA: Academic Press.

Fekken, G. C., Holden, R., & Cotton, D. H. G. (1999). Person reliability of psychiatric patients’ response to a psychopathology inventory. Journal of Clinical Psychology, 55, 1299–1306.CrossRefPubMed

Feldt, L. S. (1969). A test of the hypothesis that Cronbach’s alpha or Kuder-Richardson coefficient twenty is the same for two tests. Psychometrika, 34, 363–373.CrossRef

Feldt, L. S., & Kim, S. (2006). Testing the difference between two alpha coefficients with small samples of subjects and raters. Educational and Psychological Measurement, 66, 589–600.CrossRef

Ferrando, P. J. (2004). Person reliability in personality measurement: An item response theory analysis. Applied Psychological Measurement, 28, 126–140.CrossRef

Finke, M. S., & Huston, S. J. (2003). The brighter side of financial risk: Financial risk tolerance and wealth. Journal of Family and Economic Issues, 24, 233–256.CrossRef

Fiske, D. W. (1957). An intensive study of variability scores. Educational and Psychological Measurement, 17, 453–465.CrossRef

Fiske, D. W., & Rice, L. (1955). Intra-individual response variability. Psychological Bulletin, 52, 217–250.CrossRefPubMed

Glaser, R. (1949). A methodological analysis of the inconsistency of response to test items. Educational and Psychological Measurement, 9, 727–739.

Goldberg, L. R. (1978). The reliability of reliability: The generality and correlates of intra-individual consistency in responses to structured personality inventories. Applied Psychological Measurement, 2, 269–291.CrossRef

Grable, J. E. (2000). Financial risk tolerance and additional factors that affect risk taking in everyday money matters. Journal of Business and Psychology, 14, 625–630.CrossRef

Grable, J. E., & Lytton, R. H. (1998). Investor risk tolerance: Testing the efficacy of demographics as differentiating and classifying factors. Financial Counseling and Planning, 9(1), 61–73.

Grable, J., Lytton, R., & O’Neill, B. (2004). Projection bias and financial risk tolerance. Journal of Behavioral Finance, 5, 142–147.CrossRef

Halek, M., & Eisenhauer, J. G. (2001). Demography of risk aversion. The Journal of Risk and Insurance, 68, 1–24.CrossRef

Hallahan, T. A., Faff, R. W., & McKenzie, M. D. (2004). An empirical investigation of personal financial risk tolerance. Financial Services Review, 13, 57–78.

Hanna, S. D., & Chen, P. (1997). Subjective and objective risk tolerance: Implications for optimal portfolios. Financial Counseling and Planning, 8(2), 17–26.

Harlow, W. V., & Brown, K. C. (1990). The role of risk tolerance in the asset allocation process: A new perspective. Charlottesville, VA: The Research Foundation of the Institute of Chartered Financial Analysts.

Harris, J. L. (2004). Using value at risk to assess investment risk tolerance. Journal of Personal Finance, 3(3), 113–128.

Hartog, J., Ferrer-i-Carbonell, A., & Jonker, N. (2002). Linking measured risk aversion to individual characteristics. Kyklos, 55(1), 3–26.CrossRef

Heidal-Schiltz, S. N. (1998). A repertory grid assessment of traitedness and its relation to the validity of the NEO PI-R Conscientiousness scale. Dissertation Abstracts International: Section B: The Sciences & Engineering, 58(10-B), 5694.

Hernandez, J. M., Rubio, V. J., Revuelta, J., & Santacreu, J. (2006). A procedure for estimating intrasubject behavior consistency. Educational and Psychological Measurement, 66, 417–434.CrossRef

Hsee, C. K., & Weber, E. U. (1997). Fundamental prediction error: Self-others discrepancies in risk preference. Journal of Experimental Psychology: General, 126, 45–53.CrossRef

Huxley, S. J., & Burns, J. B. (2004). Asset dedication: How to grow wealthy with the next generation of asset allocation. New York: McGraw-Hill Professional.

ISO. (2004). Personal financial planning. Sydney, Australia: Standards Australia International. Retrieved April 18, 2007, from http://www.saiglobal.com/PDFTemp/Previews/OSH/as/misc/miscpub/MP53-2004.pdf.

Jackson, D. N., Hourany, L., & Vidmar, N. J. (1972). A four dimensional interpretation of risk taking. Journal of Personality, 40, 483–501.CrossRefPubMed

Johnson, J. G., Wilke, A., & Weber, E. U. (2004). Beyond a trait view of risk taking: A domain-specific scale measuring risk perceptions, expected benefits, and perceived-risk attitudes in German-speaking populations. Polish Psychological Bulletin, 35, 153–163.

Joo, S., & Grable, J. E. (2004). An exploratory framework of the determinants of financial satisfaction. Journal of Family and Economic Issues, 25, 25–50.CrossRef

Kenrick, D. T., & Stringfield, D. O. (1980). Personality traits and the eye of the beholder: Crossing some traditional philosophical boundaries in the search for consistency in all of the people. Psychological Review, 87, 88–104.CrossRef

Lampenius, N., & Zickar, M. J. (2005). Development and validation of a model and measure of financial risk-taking. Journal of Behavioral Finance, 6, 129–143.CrossRef

Lanning, K. (1988). Individual differences in scalability: An alternative conception of consistency for personality theory and measurement. Journal of Personality and Social Psychology, 55, 142–148.CrossRef

Lanning, K. (1991). Consistency, scalability, and personality measurement. New York: Springer-Verlag.

Lecerf, T., Ghisletta, P., & Jouffray, C. (2004). Intraindividual variability and level of performance in four visuo-spatial working memory tasks. Swiss Journal of Psychology—Schweizerische Zeitschrift für Psychologie—Revue Suisse de Psychologie, 63, 261–272.

Lumsden, J. (1977). Person reliability. Applied Psychological Measurement, 1, 477–482.CrossRef

Mischel, W., & Shoda, Y. (1995). A cognitive-affective system theory of personality: Reconceptualizing situations, dispositions, dynamics, and invariance in personality structure. Psychological Review, 102, 246–268.CrossRefPubMed

Mitra, S. K., & Fiske, D. W. (1956). Intra-individual variability as related to test score and item. Educational and Psychological Measurement, 16, 3–12.

Moreschi, R. W. (2004). Incorporating investor risk tolerance into the financial planning process. Journal of Personal Finance, 3(3), 89–98.

Nesselroade, J. R., & Ram, N. (2004). Studying intraindividual variability: What we have learned that will help us understand lives in context. Research in Human Development, 1, 9–29.CrossRef

Nesselroade, J. R., & Salthouse, T. (2004). Methodological and theoretical implications of intraindividual variability in perceptual-motor performance. Journals of Gerontology. Series B, Psychological Sciences and Social Sciences, l59B(2), P49–P55.

Ottaway, T., & Niendorf, B. (2002). Multi-agent simulation and genetic algorithms: An investigation of market risk premiums. Decision Sciences Institute 2002 annual meeting proceedings, pp. 1618–1623.

Paunonen, S. V. (1988). Trait relevance and the differential predictability of behavior. Journal of Personality, 56, 599–619.CrossRef

Paunonen, S. V., & Jackson, D. N. (1985). Idiographic measurement strategies for personality and prediction: Some unredeemed promissory notes. Psychological Review, 92, 486–511.CrossRef

Penner, L. A., Latané, B., & Richardson, D. R. (1989, June). Predictability as an individual difference variable. Paper presented at the meeting of the international society for the study of individual differences. Heidelberg, Germany.

Penner, L. A., Shiffman, S., Paty, J. A., & Fritzsche, B. A. (1994). Individual differences in intraperson variability in mood. Personality & Social Psychology, 66, 712–721.CrossRef

Reise, S. P., & Waller, N. G. (1993). Traitedness and the assessment of response pattern scalability. Journal of Personality and Social Psychology, 65, 143–151.CrossRef

Rolison, M. R., & Scherman, A. (2003). College student risk-taking from three perspectives. Adolescence, 38, 689–704.PubMed

Roszkowski, M. J. (1992). Personal financial risk tolerance. Bryn Mawr, PA: The American College.

Roszkowski, M. J., Davey, G., & Grable, J. E. (2005). Insights from psychology and psychometrics on measuring risk tolerance. The Journal of Financial Planning, 18(4), 66–75.

Roszkowski, M. J., Delaney, M. M., & Cordell, D. M. (2004). The comparability of husbands and wives on financial risk tolerance. Journal of Personal Finance, 3(3), 129–144.

Roszkowski, M. J., & Grable, J. E. (2005). Estimating risk tolerance: The degree of accuracy and the paramorphic representations of the estimate. Financial Counseling and Planning, 16(2), 29–48.

Satterwhite, R. C., Fogle, E. E., & Williams, J. E. (1999). Revisiting the stability of variability: Traitedness and supertraitedness on the ACL and NEO-FFI. Social Behavior & Personality, 27, 205–220.CrossRef

Shoda, Y. (1999). A unified framework for the study of behavioral consistency: Bridging person × situation interaction and the consistency paradox. European Journal of Personality, 13, 361–387.CrossRef

Slovic, P. (1964). Assessment of risk taking behavior. Psychological Bulletin, 61, 220–233.CrossRefPubMed

Steiger, J. H. (1980). Tests for comparing elements of a correlation matrix. Psychological Bulletin, 87, 245–251.CrossRef

Streiner, D. L. (2003). Starting at the beginning: An introduction to coefficient alpha and internal consistency. Journal of Personality Assessment, 80, 99–103.CrossRefPubMed

Tellegen, A. (1988). The analysis of consistency in personality assessment. Journal of Personality, 56, 622–663.CrossRef

Tice, D. M. (1989). Metatraits: Interitem variance as personality assessment. In D. M. Buss & N. Cantor (Eds.), Personality psychology: Recent trends and emerging directions (pp. 194–200). New York: Springer-Verlag.

Tracey, T. J. G. (2003). Interest traitedness as a moderator of interest-occupation congruence. Journal of Vocational Behavior, 62, 1–10.CrossRef

Troops, H. A. (1927). On computing the average deviation from the mean. Journal of Educational Research, 15, 46–51.

Wagener, A. (2005). Linear risk tolerance and mean-variance preferences. Economics Bulletin, 4(1), 1–8.

Walls, M. R., & Dyer, J. S. (1996). Risk propensity and firm performance: A study of the petroleum exploration industry. Management Science, 42, 1004–1021.CrossRef

Yang, Y. (2004). Characteristics of risk preferences: Revelations from Grable & Lytton’s 13-item questionnaire. Journal of Personal Finance, 3(3), 20–40.

Yao, R., Hanna, S. D., & Lindamood, S. (2004). Changes in financial risk tolerance, 1983–2001. Financial Services Review, 13, 249–266.

Yip, U. Y. (2000). Financial risk tolerance: A state or a trait? Unpublished master’s thesis, The University of New South Wales, New South Wales, Australia. Retrieved April 18, 2007 from http://www.riskprofiling.com/Downloads/AStateOrATrait.pdf.

Yook, K., & Evertt, R. (2003). Assessing risk tolerance: Questioning the questionnaire method. Journal of Financial Planning, 16(8), 48–55.

Zaleskiewicz, T. (2001). Beyond risk seeking and risk aversion: Personality and the dual nature of economic risk taking. European Journal of Personality, 15, S105–S122.CrossRef

Zanna, M. P., Olson, J. M., & Fazio, R. H. (1980). Attitude-behavior consistency: An individual difference perspective. Journal of Personality and Social Psychology, 38, 432–440.CrossRef

Zuckerman, M., Bernieri, F., Koestner, R., & Rosenthal, R. (1989). To predict some of the people some of the time: In search of moderators. Journal of Personality and Social Psychology, 57, 279–293.CrossRef

Title: Intraperson Consistency in Financial Risk Tolerance Assessment: Temporal Stability, Relationship to Total Score, and Effect on Criterion-related Validity
Authors: Michael J. Roszkowski
Michael M. Delaney
David M. Cordell
Publication date: 01-12-2009
Publisher: Springer US
Published in: Journal of Business and Psychology / Issue 4/2009
Print ISSN: 0889-3268
Electronic ISSN: 1573-353X
DOI: https://doi.org/10.1007/s10869-009-9115-3

Springer Professional

Abstract

Purpose

Design/Methodology/Approach

Findings

Implications

Originality/Value

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 4/2009

Examining the Role of Applicant Faking in Hiring Decisions: Percentage of Fakers Hired and Hiring Discrepancies in Single- and Multiple-Predictor Selection

The Influence of Social Regard on the Customer–Service Firm Relationship: The Moderating Role of Length of Relationship

The Moderating Effect of Personality on Employees’ Reactions to Procedural Fairness and Outcome Favorability

Workplace Romance: A Justice Analysis

Cognitive Style and Entrepreneurial Drive of New and Mature Business Owner-Managers

Organizational Citizenship Behavior in Performance Evaluations: Distributive Justice or Injustice?