Understanding Risk Taking in Retirement Savings through Attitude

November 2008

This paper examines two studies of investment risk taking among higher education employees in their institution-sponsored retirement savings plans. Risk taking is a complex psychological and behavioral process. The first study examined direct correlates of risk taking. The second study modeled the mediated effects of dispositions, opportunity perception, experience, inertia, and demographics, and the direct effects of an attitudinal risk preference and knowledge of investment principles on risk taking in retirement savings. The studies point out two very direct influences on risk taking that can be managed: investment knowledge and an attitudinal preference for different risk levels in savings. Of these two triggers, the data showed that attitudinal preference had an effect that is almost three times greater on levels of risk in retirement savings portfolios than the effect of investment knowledge. Because attitudinal preference explains risk taking above and beyond investment knowledge, training programs can be improved by building attitude assessment and education into them. The extent that people more systematically examine their value and expectancy perceptions, they will be able to make more informed decisions that meet their situation. In addition, because beliefs and perceptions directly influence attitudes, communication and training programs should be designed with the goal of helping people to form beliefs that are objectively appropriate to their circumstance.