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Paper info: A sensemaking perspective: investigating development of financial risk tolerances

Title


A sensemaking perspective: investigating development of financial risk tolerances

Authors


Kylie Gilbey,
Sharon Purchase
University of Western Australia
Australia
Sharon Purchase and Ray da Silva Rosa

Place of Publication


The paper was published at the 35th IMP-conference in Paris, France in 2019.

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Abstract


Financial risk tolerances are defined as “the willingness to engage in behaviours in which the outcomes remain uncertain with the possibility of an identifiable negative outcome” (Grable, Lytton & O'Neill 2004 p142). Within behavioural finance, risk tolerances are assumed to be an elastic and diverse psychological trait, used as a cognitive stereotype to shortcut investment decision-making within complex financial environments. However, while often influenced by personal biases, collective heuristics, contextual and environmental cues, the evolution of financial risk tolerance attitude levels, utilised by individuals, or collectively shared within associated groups, is under-explored. We introduce sensemaking process frameworks to contribute to important gaps in the evolutionary development of investors financial risk heuristics and biases influencing risk tolerances within the financial ecosystem, and investigate influences of interaction relationships between actors at the individual, company and institutional or environmental layer. Using perceptions of actors central to IPO capital raising, in a posited higher financial risk-tolerance environment, this exploratory study finds individual risk tolerance perceptions are closely aligned to retrospective influences, impacting individual and collective beliefs and biases, which continue to be reinforced by ongoing relationship interactions, both socially and through embedded knowledge networks, creating legitimacy through shared understandings.