Behavioural risk profiling

A sizable literature shows that many people are loss averse, being more sensitive to losses than to commensurate gains. Furthermore, it has been shown that an individual’s level of loss aversion is an important driver of their investment decisions. Based on these findings, regulators are encouraging financial institutions to incorporate clients’ loss aversion in risk profiling classifications. The most critical obstacle to doing so is the lack of a valid measurement method that can straightforwardly be integrated into existing processes.

In 2016, my co-authors and I published a paper introducing a novel theoretically valid way to elicit an individual’s loss aversion in the Journal of Risk and Uncertainty. This brought me in contact with Jurgen Vandenbrouke, an expert general manager at a large Belgian bank, looking for a way to measure loss aversion. I collaborated with him and his team to integrate our method for eliciting loss aversion into their risk profiling application. This approach was trailed in Belgium and implemented in the actual risk profiling application of the bank in Ireland. We have written a working paper describing these implementations and the results obtained.

Jurgen Vandenbrouke is now the director of Everyone Invested, a wealth tech spinoff of the Belgian bank. One product they market is their Profiler, which includes our method to elicit loss aversion. As a result, more financial institutions will likely adopt our method over the coming years.

At the University of Essex, I teach EC955: Experimental Economics at the master level. This module equips students with the tools to critically access experimental methods. Students put their theoretical knowledge into practice, learning how to design experiments and interpret their results. For this, students will be grouped into teams who will collaborate to design an experiment and present it in class. Students will also critically assess another group’s experimental design. In addition, I also supervise undergraduate dissertations.

Previously, at the Vrije Universiteit Amsterdam, I taught at the undergraduate, graduate, and postgraduate levels.

• At the bachelor level, I lectured in the course Behavioral Finance and Real Estate (BSc, 3rd year). This course provides a behavioral perspective on real estate decision-making and markets. Students learn how behavioral biases affect participants’ decisions in real estate markets and how the bounded rationality of market participants can explain real estate market dynamics. In the course, I provided students with a psychological perspective on negotiations, property valuations, and mortgage choices.

• At the master level, I provided lectures in behavioral ethics and negotiation in the course Behavioral Finance.

• At the executive education level, I lectured on behavioral ethics in the program Compliance and Integrity Management.

• I also supervised MSc theses on topics related to behavioral finance and provided tutorials in Finance (BSc, 2nd year). In this latter course, we built the foundation for the study of corporate finance and investments. The focus was on financial decision-making in theory and practice. Our coverage of core finance topics included: i) capital budgeting, ii) asset pricing, and iii) financial investment.

During my Ph.D. at Erasmus University Rotterdam, I designed and taught tutorials in behavioral economics and supervised both BSc and MSC thesis in topics related to behavioral economics and behavioral finance.

Here, I provide a selected overview of the coverage that my research has received in popular media:

• For the paper Does Losing Lead to Winning? An Empirical Analysis for Four Sports: NRC (Dutch)

• For the paper Gender and Willingness to Compete for High Stakes: Süddeutsche Zeitung (German)

• For the paper Can the Market Divide and Multiply? A Case of 807 Percent Mispricing: Wall Street Journal

• For the paper The Wisdom of the Inner Crowd in Three Large Natural Experiments: Bloomberg; Cosmos Magazine; Yahoo

• For the papers Measuring Loss Aversion under Ambiguity: A Method to Make Prospect Theory Completely Observable and Behavioral Risk Profiling: Measuring Loss Aversion of Individual Investors: De Tijd (Dutch) ; L’Echo (French)

• For the paper The Evil Eye: Eye Gaze and Competitiveness in Social Decision Making: The Conversation

• For the paper Number Preferences in Lotteries: Wall Street Journal; NOS (Dutch); Algemeen Dagblad (Dutch); BNR (Dutch); De Morgen (Dutch); RTL (Dutch)

• For the paper Risky Choice in the Limelight: Financial Times; The Times; The Conversation

• For the paper Beyond Chance? The Persistence of Performance in Online Poker: Newsweek; The Independent (1/2); The Independent (2/2); The Times; Daily Mail; The Conversation

• For the paper Split or Steal? Cooperative Behavior When the Stakes Are Large: FSR Forum; Tijdschrift voor het Economisch Onderwijs (Dutch)