Optimal behaviour
Greg Davies looks at the relationship between individual psychological risk tolerance and portfolio management
It is a truism of investing that achieving higher returns requires taking more risk. On average those who take risk are rewarded for doing so – but ‘on average’ provides no guarantees and there remains the possibility that the outcome will be worse than expected. Determining whether the average expected reward is sufficient to compensate for the risks taken requires an understanding of precisely what is meant by risk.
Author: Greg Davies
Greg Davies is head of investment philosophy and behavioural analytics at Barclays Wealth. He holds an MPhil in Economics and a PhD in Behavioural Decision Theory from Cambridge University. He remains active in academia, holding an honorary research fellowship in psychology at UCL, presenting regularly at academic conferences in both economics and psychology, and guest lecturing at the LSE and LBS.
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