The relationship between risk tolerance and financial investment decisions: Evidence from Jordan

Abstract

This study investigates the moderating effect of individual differences, as measured by the intolerance of uncertainty scale (IUS), on investors' portfolio allocation decisions among assets with varying risk levels. The securities varied from safer government securities to riskier assets. We manipulate the investment risk in each security by varying the market risk, also known as beta, the standard deviation of the return, and the expected return. The findings show that less risk-tolerant individuals invested less capital in riskier stocks and more money in safer government securities. However, those with more risk tolerance allocated more money to the less hazardous investments. As anticipated, those with less risk tolerance allocated more capital to the more secure stocks.