Risk Tolerance
This project was completed for a fintech SaaS company. The goal was to create an assessment tool that accurately described an individual's financial risk preferences and the inputs that determine those preferences.
Research
The first step was conducting research to choose the appropriate model for risk preferences. This involved a literature review of academic research from psychology, marketing, finance, and behavioral economics.
Behavioral Model
From this review, I selected a psychological or subjective model of risk-taking. This model allowed for the determination of preferences in the relevant domain (financial risks), while adding inputs unexplored in the wealth management space (perceptions about downsides and upsides).
Testing
Validation testing was run on two online samples selected to match the mass affluent market. This was done to confirm that the results aligned with published academic research results while also testing other common measures known to correlate with psychological risk models (e.g., loss aversion, regret aversion, availability biases, and overconfidence).
Implementation
After testing was complete, I reviewed the data and results to create a customized report for both individual investors and their financial advisers. The report included data specific to the individual's responses to the assessment (e.g., statements about optimism, risk propensity, loss aversion, and emotional response) and categorization of the individual based on their perceptions of risk and benefits relative to the population. The report for the adviser included recommendations on how best to support the investor based on their data and dependent on the desired action (i.e., increased risk-taking). (The actual report cannot be displayed for confidentiality reasons.)
User Feedback
The assessment was launched to a subset of current users to solicit user feedback and make changes if necessary. I collected feedback via structured interviews and focus groups. Some changes were made, and the assessment was launched via the decided GTM strategy.