RT Journal Article SR Electronic T1 Risk Tolerance, Projection Bias, Vividness, and Equity Prices JF The Journal of Investing FD Institutional Investor Journals SP 68 OP 74 DO 10.3905/joi.2006.635632 VO 15 IS 2 A1 John Grable A1 Ruth H. Lytton A1 Barbara O'Neill A1 So-Hyun Joo A1 Derek Klock YR 2006 UL https://pm-research.com/content/15/2/68.abstract AB This article examines two hypotheses. First, investor risk tolerance fluctuates in part due to changes in the investment markets, and, second, investors tend to project stock market closing price data into the formation of risk-tolerance attitudes. Regression tests were conducted to determine the role of projection bias and vividness in the formation of risk attitudes among a convenience sample of internet survey respondents (N = 1,355). It was found that individuals who own securities tend to use recent and vivid stock market data when establishing risk attitudes. Further, risk attitudes, on average and in the aggregate, were found to fluctuate based on closing stock prices the previous week. Financial planners are cautioned that risk tolerance should not be used as a static input within asset allocation models.TOPICS: Factors, risk premia, analysis of individual factors/risk premia