by Victor Ricciardi Golden Gate University Adjunct Professor and Doctoral Candidate 4 Alexandra Drive Middle Island, NY 11953 Email Address: firstname.lastname@example.org Preliminary Version: July 20, 2004
Comments and suggestions are always welcomed and appreciated.Note: Please do not “direct quote” any material from this document without first contacting the author for permission since this is a preliminary draft. Thanks for your cooperation.
Acknowledgments: The author would like to thank the following individuals for their insightful comments and support: John Courtis, Robert Olsen, Doug Rice, Hugh Schwartz, Hersh Shefrin, Paul Slovic, Igor Tomic, CarolWatson and Arnold Wood. The paper was presented at the Society for the Advancement of Behavioral Economics/ International Association for Research in Economic Psychology conference, July 15-18, 2004 in Philadelphia, Pennsylvania, U.S.A. I would like to thank the members of SABE/IAREP for their helpful questions and suggestions during my presentation. This paper is based on the author’sdissertation “A behavioral finance study: An investigation of the perceived risk for common stocks by investment professionals (financial analysts vs. financial planners)” at Golden Gate University in San Francisco, California.
Victor Ricciardi: A Risk Perception Primer
A Risk Perception Primer: A Narrative Research Review of the Risk Perception Literature in Behavioral Accounting and BehavioralFinance
by Victor Ricciardi
Abstract A significant topic within the behavioral finance literature is the notion of perceived risk pertaining to novice investors (i.e. individuals, finance students) and investment professionals (i.e. financial planners, security analysts). The author provides an overview of the concepts of risk, perception, and risk perception with the financial scholar in mind.There is also a presentation on the behavioral finance concepts and themes that might influence an individual’s perception of risk for different types of financial services and investment products. The next section presents a discussion of the significant risk perception research in the social sciences namely from psychology. This research work from psychology (i.e. risk perception studies in riskysituations and hazardous activities) is the behavioral foundation for a substantial amount of the current contributions within the behavioral accounting and behavioral finance literature. In particular, the work of the Decision Research scholars including Paul Slovic and his co-authors on risk perception studies that have crossed over from psychology to the disciplines of behavioral accounting andbehavioral finance (i.e. behavioral risk characteristics from psychology that are applied within a financial/investment decision making context). Within the last section of this paper, the author reveals the first of its kind thorough review of the academic research studies on perceived risk/risk perception from the disciplines of behavioral accounting since 1975 and behavioral finance since thelate 1960s. This literature review incorporates 12 works from behavioral accounting and 71 endeavors from behavioral finance. In addition, the behavioral finance literature review section also includes approximately 10 narrative research reviews from risk perception studies in behavioral economics. A major facet of this paper was to bring together all the previous studies in the risk perceptionliterature for the purpose of conducting a study based on the academic foundation of the main themes, research approaches, and findings from this collection of studies. Keywords: risk perception, perceived risk, financial risk indicators, behavioral risk characteristics, objective risk, subjective risk, behavioral accounting, standard finance, behavioral finance, psychology, financial psychology...