Irrational individuals and inefficient markets : A quantitative study of factors’ impact on individuals’ risk willingness

Sammanfattning: While conventional academic finance highlights theories within modern portfolio theory such as the Capital Asset Pricing Model, the emerging field of behavioral finance tries to develop these theories by incorporating psychological elements into the equation. Furthermore, an extensively discussed phenomenon is individuals’ risk willingness. Accordingly, this thesis dissects said risk willingness to better understand what affects it. For this analysis, a Partial Proportional Odds Model is performed via the usage of individuals who answered the ‘Survey of Household Economics and Decision-making’ back in 2018. Altogether, several factors are discovered to have a highly significant impact on individuals’ risk willingness – were the results are in line with Tversky and Kahneman’s (1992) Prospect Theory. Conclusively, suggestions on future research is presented based on implications that occurred.