Philip A. Horvath

Risk Aversion and Personality Type

The finance literature supports an increasing role for behavioral aspects of investment decision-making. Among other factors such as demographics, personality type may influence risk tolerance as well. This paper explores the relationship between personality type dimensions of the Myers-Briggs Type Indicator (MBTI) and the moments approach to individual investor risk tolerance inherent in expected utility theory (EUT). Our study uses survey results to relate ex ante EUT tolerance for variance and skew to MBTI measures. Results indicate that personality type does explain individual ex ante EUT risk tolerance. Our results further suggest that the relationship between personality type and individual ex ante EUT risk tolerance is non-linear in form.

Compounding/discounting in continuous time

This paper suggests that the current method for compounding and discounting in continuous time may be inaccurate and misleading. The extant continuous time model is based on an arithmetic average. Using the geometric mean, an alternative, simple, model is suggested. An example using simulated data indicates that the potential error is meaningful in terms of size and impact on statistical analyses.