The New Behavioral Science of Risk Taking in Business

There’s something of a bull market in understanding attitudes toward risk. Last decade’s financial crisis spawned a slew of platforms — Riskalyze, FinaMetrica, Tolerisk, and a rapidly growing list of competitors — that seek to understand people’s tolerance for financial risk.

It is now common for financial advisors to ask clients a set of questions about how much money they’re willing to lose in exchange for the chance to make more.

The advisors then use the answers to assign clients a risk number and match them to appropriate portfolios. The practice represents an important step in the evolution of thinking about risk.

In the wealth management industry, it’s become a given that it is not enough to analyze just risks themselves, but also how different people respond to them.