The economics and psychology of risk taking, impatience and financial decisions

Heads of households, young professionals, retired persons… There is no shortage of economic theories that define “investor profiles” based on their willingness to take financial risks. However, “these models remain very stereotypical, which is why they need to be confronted with reality in order to be fine-tuned,” explains Pr. Tallon.
Today he is using the field of life insurance to conduct experimental economic studies. His first study was carried out in collaboration with AXA among policyholders and established characteristics for several categories of individuals based on their employment and wealth status, as well as their “risk appetite.”
The data is currently being compared to portfolios of policyholders in order to verify the consistency between theory and practice. Pr. Tallon expects to find large gaps. “There is evidence that some people are more adventurous in the real world than on paper and vice versa,” he explains. “The challenge therefore lies in correcting the models by identifying the key factors that best explain behavior in the face of financial risk.”
Beyond the academic questions raised, his research has a practical application. As French law now requires banks to stay abreast of their customers’ expectations, this research could serve to improve the relevance of surveys. Another application would be better anticipating the possible “errors” committed by economic agents, by understanding the source of such errors and then correcting them. This could be achieved either by passing new laws or providing financial education, the form of which remains to be determined: financial education classes in secondary school, specialized websites,etc.

Scientific title: The economics and psychology of risk taking, impatience and financial decisions: confronting survey, experimental and insurance data