The relationship between psychopathy and financial risk and time preferences

Abstract

Purpose The purpose of this paper is to examine the relationship between psychopathy and its underlying traits and financial risk and time preferences. Design/methodology/approach The authors measure risk and time preferences using both the cumulative prospect theory and quasi-hyperbolic time discounting in a sample of business majors. The Psychopathic Personality Inventory – Revised test is then used to measure the global psychopathy and eight primary and two secondary traits of the sample of business majors. The measures of psychopathy are used as explanatory variables to model variation in subjects’ time and risk preferences. Findings The authors find that the overall score on the continuum of psychopathy is positively related to the linearity of the cumulative prospective utility function. A breakdown of psychopathy into its secondary and primary traits shows a more complex relation. For example, the secondary trait of self-centered impulsivity is statistically significant in models of financial risk preference determinants under the cumulative prospect theory. The authors find that the primary traits of self-centered impulsivity and stress immunity are related to a higher time preference discount rate under quasi-hyperbolic time preferences. Originality/value This paper adds to the literature on personality and financial decisions and highlights the importance of psychopathy in finance.

Financial risk tolerance of individuals from the lens of big five personality traits – a multigenerational perspective

“…Literature review and research hypothesis 3.1 Personality traits and risk-taking propensity Personality refers to "the relative enduring styles of thinking, feeling and acting that characterise an individual" [Costa et al (1995), p. 124). The literature highlights the relevance of addressing individual personality characteristics when describing financial decisionmaking and risk-taking behaviours (Liu et al, 2016;Gerhard, 2018;Rabbani et al, 2019;Rai et al, 2021;Shank et al, 2021;Akhtar and Malik, 2022). Personality traits and characteristics as determinants have a magnanimous impact on attitudes towards investment risk that are more important than the effect of emotions (Brooks and Williams, 2021).…”

A Z-Tree Implementation of the Dynamic Experiments for Estimating Preferences [DEEP] Method

“…Considering the increasing attention, and pronounced internal (Schley and Peters, 2014;Jachimowicz et al, 2017;Atlas et al, 2017;Nofsinger and Shank, 2019;Webb and Shu, 2017;Soutschek et al, 2020;Patterson and Shank, 2020;Shank et al, 2020;Sun et al, 2021) and external validity of the DEEP method in the existing literature (Li et al, 2016(Li et al, , 2020, we restrict our attention exclusively to the DEEP method in the remaining parts of the paper. We further restrict our discussion to only the incentivized version of the DEEP method, as developed by us, and its comprehensive (not reduced) and optimal format [DEEP 12 4 ] 4 Section 3 contains information about how to calculate the number of potential option combinations for the different DEEP (choice) versions.…”