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Abstract
This dissertation is comprised of three papers that examine various aspects of financial risk tolerance and its relationship with risk-taking behavior. Data were collected from diverse sources, including an experiment, nationally accessible data, and an online survey. The first paper evaluated patterns of brain waves (i.e., alpha, beta, and gamma) as descriptors of financial risk-taking behavior using quantitative electroencephalographic (EEG) data. The results indicated that brain wave activation is not directly associated with the decision to engage in financial risk-taking. Instead, the findings suggest that an individual’s decision to engage in a risk-taking activity is more closely related to the person’s financial knowledge, financial experience, and willingness to take risks. The second study estimated the association between household income and tobacco and alcohol use while measuring the mediation effect of risk tolerance among mid-life adults using data from the National Longitudinal Survey of Youth 1979 (U.S. Bureau of Labor Statistics). The results of the regression and mediation tests indicated that risk tolerance mediates the income effect on tobacco and alcohol use. Findings from this study show that financial management can serve as an effective education tool to reduce negative health behaviors. This study provides unique insight into the interplay between household income and health outcomes, highlighting the potential benefits of incorporating financial risk tolerance and its management into public health interventions. The third study aimed to evaluate the effectiveness of different risk tolerance assessment methods in describing the risk-taking attitudes and behaviors of financial decision-makers using data collected through online surveys. A series of ordinal regression models indicated that risk-tolerance scores derived from a scale developed using psychometric principles offered more accurate insight into a financial decision-makers’ current and future willingness to take risks and portfolio choices. The findings of this study suggest that if the purpose of a risk-tolerance assessment is to gain insight into subsequent risk attitudes and investment behavior, a propensity or stated preference methodology should be considered. Overall, these three studies provide valuable descriptions of the complex relationships between financial risk tolerance and risk-taking behavior.