Personality Traits and Risk Investment Decisions: An Examination Based on Microdata from Chinese Household Finance

Abstract

Introduction: As the fundamental unit of socio-economic activities, the effectiveness of households' asset portfolios is crucial for steady wealth growth and effective risk management, forming the cornerstone of a robust financial system and economic development. Utilizing data from the China Household Finance Survey, this study explores the significance of personality traits on the effectiveness of Chinese households' financial asset portfolios from a cognitive perspective.

Objectives: The primary objective of this study is to analyze the impact of personality traits on the effectiveness of Chinese households' financial asset portfolios. It aims to investigate how non-neurotic, openness, and agreeableness personality traits influence cognitive abilities and, consequently, portfolio performance. Additionally, the study seeks to explore the heterogeneity of these effects across rural and urban households, regional differences, and income levels.

Methods: Drawing on cognitive psychology and personality economics, this study employs a quantitative approach using data from the China Household Finance Survey. It conducts in-depth analysis through regression models to examine the relationship between personality traits and portfolio effectiveness. The research focuses on key personality dimensions, including non-neuroticism, openness, and agreeableness, and their correlation with cognitive abilities and investment behaviors.

Results: The results reveal a significant correlation between personality traits and cognitive abilities. Specifically, non-neurotic personality traits contribute positively to enhancing individuals' cognitive abilities, leading to more effective portfolios. An increase in household heads' openness to experience is associated with improved portfolio effectiveness. Conversely, the development of agreeableness traits is detrimental to enhancing portfolio effectiveness, with notable heterogeneity across rural and urban households, regions (eastern, central, and western), and income levels. Mechanism analysis suggests that extroversion fosters deeper cognitive abilities, enhancing risk-taking willingness and portfolio effectiveness, while agreeableness leads to superficial cognitive abilities, increasing conformity in investment decisions and reducing portfolio effectiveness.

Conclusions: This study offers a novel perspective on the factors influencing household financial decisions from the viewpoint of personality economics. By examining the relationship between personality traits and the effectiveness of financial asset portfolios, it contributes significantly to a comprehensive understanding of household investment behaviors. The findings highlight the importance of considering personality dimensions in financial decision-making and investment strategies, suggesting potential interventions to improve portfolio effectiveness and financial well-being.