MODELING FINANCIAL RISK ATTITUDE

THE ROLE OF EDUCATION AND FINANCIAL LITERACY

Abstract

This paper studies the relationship between risk propensity, education and financial literacy. The
results of the empirical investigation confirm the importance of the key explanatory variables of
education and financial competence. Since they are both included in the model, the different
roles of each are singled out. In particular, while education turns out to be a factor contributing
to raising risk tolerance, financial literacy tends to reduce risk propensity. Risk attitude is evaluated by self-reported assessment and modeled through cumulative logit models. In order to handle anomalous data, M estimators with a bounded influence function are considered.