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Introduction The aim of the research is to explore the Risk Type Profile of Traders •Early financial models view markets as efficient • ‘people will act in rational ways’
•Behavioural Finance models consider the effect of emotions and cognitive errors on decision making • E.g. Self-deception bias, halo-effect…
•But what about individual differences? www.psychological-consultancy.com
An introduction to the Risk Type Compass
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Two Risk-Taking factors 1: Fear Nervous …………… Fearless Apprehensive……….. Relaxed Rigid ………………... Flexible Pessimistic ………. Optimistic Vulnerable …………... Daring Stressed ……………….. Calm www.psychological-consultancy.com
Two Risk-Taking factors 2: Impulsivity Carefree………………. Prudent Challenging………… Compliant Unpredictable……… Consistent Vague………………… Detailed Impulsive……………... Planned Disorganised………. Systematic www.psychological-consultancy.com
Four ‘pure’ Risk Types
Everyone has a position on BOTH of these axes
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Four complex Risk Types
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Four complex Risk Types
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Four complex Risk Types
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Four complex Risk Types
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The Risk Type Compass •
Continuous spectrum
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Adjacent Risk Types blend
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Facing Risk Types opposites
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Axis group 10%
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Strongest at the edge
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Eight Risk Types •
Spontaneous Uninhibited, excitable, unpredictable and distraught when things go wrong.
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Intense Enthusiastic and committed, but pessimistic and easily defeated by setbacks.
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Wary Well organised but, anxious and fearful of failure they passionately seek to control. Prudent Cautious, self-controlled and most comfortable with continuity and familiarity.
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Deliberate Imperturbable, confident and systematic they are fearless and well prepared.
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Composed Calm, cool headed and optimistic they seeming oblivious to risk.
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Adventurous Calm and unemotional but impulsive, daring and up for any challenge.
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Carefree Unconventional and excitement seeking, their imprudence makes life exciting.
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Risk Type Influence
Risk perception
Risk tolerance (reaction to risk)
Risk taking
Decision making
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Details of Research Study
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Participants
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Analysis Five stages to the analysis: 1.Positioning along the Risk Type Compass Dimensions 2.Dispersion of Risk Types 3.Scores on subthemes 4.Effect of job level, years service and years experience 1.Risk Tolerance Index www.psychological-consultancy.com
Results of Research Study
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Risk Type Compass Dimensions
Calm:Emotional dimension FEAR Traders were found to be significantly more
fearless
Daring:Measured dimension IMPULSIVITY Traders were found to be significantly less
impulsive
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Frequency of Risk Types in Trader Sample Compared to General Population
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Dispersion of Risk Types in Trader Sample
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Risk Type Group Influence
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Risk Type Compass Subthemes Traders were found to be: More confident, forgiving and resilient More focused and perfectionistic Less excitement seeking Less emotional-based decision making Less sentimental and trusting More optimistic
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The Risk Type Profile of Traders Therefore the Traders can be seen to be resilient, unfazed and optimistic in the face of stress. Their decision making is likely to be considered, well thought out and organised - rather than impulsive and spontaneous – and it is unlikely to be clouded by emotion. However, they are particularly wary and cautious of data and information and therefore may come across as mistrustful at times. www.psychological-consultancy.com
Trusting
Positively correlated with: Job level Years of Experience Years Service
* When controlling for age
Is trust a predictor of job retention? 90-98% of Traders fail Does being mistrustful play a key role in Trading? www.psychological-consultancy.com
Risk Tolerance Index
• Average Risk Tolerance of 52 (SD = 11) • But it is the style of risk that makes the profession unique www.psychological-consultancy.com
Summary Traders have a distinct risk profile As a whole, they are likely to come across as confident, resilient, optimistic and will approach risk in a systematic, organised and unemotional way They are particularly wary and cautious of others
Could this be a negative indicator of longevity as a
Trader?
Future research: collect and analyse performance data www.psychological-consultancy.com