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An analysis of risk in financial investment Quiroga-Antezana, Eduardo Raúl

Abstract

This essay attempts a preliminary explanation of the behavioral content in financial investment, and stops short of measuring it. In the past insufficient attention has been given to the analysis of risk-taking behavior in terms of expected utility and to the relationship between that behavior in financial investment and some of the variables in social structure such as occupation and wealth. These issues are presented in Chapter 1. Chapter 2 presents and discusses the scope and method of the essay, some contemporary research trends in economics, sociology, and anthropology, the analytic focus of economic sociology and anthropology relevant to the essay, markets and exchange, and the state of interdisciplinary research in this connection. Two chapters are devoted to decision-making theory; in Chapter 3, the theories of riskless and risky choices, the Bernoulli hypothesis, and game theory; in Chapter 4, unmeasurable uncertainty, a psychological criticism of the theory of risky choices and a review of risk-taking behavior as a function of the situation, the individual, and the group. Chapter 5 presents a standard economic analysis of the investment function and the liquidity preference theory, and adds a review of two early studies (Marx, Weber) on financial investment. In Chapter 6 the problem is restated in relation to the above considerations. Macrostructures are defined and the substructures differentiated. The unit of analysis is a micro-structure of financial investors drawn from one of Vancouver's brokerage firms, and the tool of analysis is a survey. In Chapter 7 the empirical data are presented and discussed in terms of the theoretical considerations. Since our data are crude, we have limited ourselves to conjectures which can be given a preliminary test. Specifically, we set forth (a) that occupation and wealth greatly affect risk-taking behavior; (b) that the higher the income and stock of wealth as indicated by portfolio composition the greater the risk aversion, and that the investment utility is a source of amusement or serves as a hedge against inflation; (c) that the smaller the income and stock of wealth as indicated by portfolio composition the higher the risk-taking behavior because of its greater utility, and that the investment utility contributes to make ends meet or provide work satisfaction. In the remaining section of the essay (Chapter 8) we appraise our research design and suggest future lines of research.

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