Skip to Content Skip to Footer
Consumer Financial Risk Taking [Dos and Don’ts]

Consumer Financial Risk Taking [Dos and Don'ts]

Slot machines in a casino in a purple lit room

By Vikas Mittal

Everyday consumers increasingly take a variety of financial risks.

Investopedia reports more than 50 million households are retail investors, individuals who buy and sell financial market products for their own personal accounts. According to Market Insider, retail traders now make up nearly 25% of all stock market activity.  


A 2019 CNBC report found about half of Americans play state lotteries, which top $71 billion in annual sales, and the average person spends more than $1,000 a year on lottery games. Purchasing insurance, betting on sports, and casino gambling represent other types of financial risk taking.

Financial advisors often direct consumers to invest at least some of their savings in risky vehicles such as the stock market, which historically has offered higher long-term returns than investments like bonds and savings accounts.

Download Article PDF

Measuring Risk Propensity

Financial risk taking represents the extent to which consumers prefer an outcome with an uncertain payoff to an outcome with a relatively certain payoff. When a consumer invests $1,000 in the stock market rather than a savings account, he or she engages in financial risk taking.

Marketing scholars measure financial risk taking in several ways. A typical study might offer experiment participants several options (e.g., invest or save) and compare their risk taking using measures such as the following:

  • The percent of consumers purchasing a lottery ticket or choosing to gamble. Researchers can make the task realistic by giving participants actual money and letting them reap the winnings or losses.
  • The percent of consumers’ investments, excluding primary homes, invested in stocks. Stocks are inherently risky, and using them as a real-world risk measure offers high externally validity.
  • Consumers’ preference among two investments varying in risk but with equal payoff. For example, a low risk option like a bank account might offer a guaranteed return of 4%. A stock fund might offer a 45% chance of a 16% return, 10% chance of a 4% return, and 45% chance an 8% loss. The long-run average return would be the same, but financial risk takers would favor the stock fund.

Subjective Knowledge and Self-efficacy

Consumers’ objective knowledge is different from their subjective knowledge. Objective financial investment knowledge is accurate information, as measured using a test or quiz. Subjective financial investment knowledge represents a consumer’s own assessment of how much he or she knows.

A large scale meta-analysis by Carlson and colleagues (2009) found consumers’ objective and subjective knowledge modestly correlated at .37. In other words, consumers believing they had great financial investment knowledge may or may not have had great knowledge of the subject.

Hadar, Sood, and Fox (2013) showed consumers’ financial risk taking increased as their subjective investing knowledge increased, independent of their objective knowledge. Specifically, consumers with high subjective knowledge were more willing to grow their investments in risky products. The researchers varied consumers’ perceived subjective knowledge, at least temporarily, in multiple ways, such as by asking easy versus difficult questions about finance.

Self-efficacy can also affect consumers’ financial risk taking. According to Gist (1987), self-efficacy represents the belief one can achieve a certain performance level. Individuals with higher self-efficacy are more optimistic, undertake more challenging tasks, and are more likely to explore new environments.

Krueger Jr. and Dickson (1994) established a strong association between high self-efficacy and risk taking among managers and executives. Mittal, Ross, and Tsiros (2002) replicated the result in multiple contexts, showing marketing managers, especially those facing positively-framed situations, were more likely to invest time and money in risky ventures as their self-efficacy increased. Increased self-efficacy focused the decision makers’ attention on potential gains, rather than potential losses.

Politics and Gender

Realizing higher self-efficacy increases financial risk taking, researchers have asked whether the association is stronger among some consumer groups than others.

He, Inman, and Mittal (2008) showed self-efficacy enhances risk taking more among males than females. An analysis of 153 Jeopardy! gameshows found male contestants with relatively high self-efficacy, measured as the percentage of correct answers they provided, made riskier financial bets than women on “Daily Doubles,” where contestants wager some of their winnings before hearing a question. Other studies have made similar findings.

Han and colleagues (2019) found self-efficacy had an enhanced effect on risk taking among conservatives. They measured consumers’ political leaning via their membership in the Republican or Democratic party, Fox versus CNN/MSNBC viewership, preference for Donald Trump or Hillary Clinton in the 2016 election, residence in a county voting Republican or Democrat, and answers on a multi-item political identity scale. The researchers measured financial risk taking via stock ownership, choosing a low risk bond fund versus a riskier stock fund, and putting money in a bank account versus a stock fund. In each study, conservatives took more financial risk than liberals, as the conservatives appeared to believe their self-efficacy and social standing were tied to financial gains.

Physical Perspective

Jami (2019) examined whether decision context can affect consumers’ financial risk taking via the effects of an elevated perspective (looking at a scene from above) or parallel perspective (looking at a scene from the ground). Jami reasoned those with an elevated perspective would have a higher sense of control and take on more risk. Researchers hung a poster showing a scene from an elevated or parallel perspective in a convenience store. On days when the elevated poster appeared, consumers spent more on lottery tickets than they did on days when the parallel poster appeared. Esteky (2022) found that people positioned closer to the edge (versus center) of a space were more likely to seek risky choices; being located closer to the edges evokes concepts related to risk.


Whether driven by high levels of subjective knowledge or self-efficacy, consumers are likely to take financial risks when they believe they have understanding of and control over the financial decision. Control can vary based on subtle factors, such as gender, political affiliation, and the physical perspective depicted around them.

Importantly, objective knowledge does not necessarily drive risk taking. Therefore, public service agencies, consumer advocates, and financial services companies with an interest in understanding and potentially altering their clients’ risk taking should consider how to influence self-efficacy and perceived control, rather than simply investing in financial literacy.

Author Bio

Vikas Mittal is the J. Hugh Liedtke Professor of Marketing at the Jones Graduate School of Business, Rice University, Houston, Texas.


Mittal, Vikas (2022), “Consumer Financial Risk Taking,” Impact at JMR, (October 20, 2022), Available at:


Carlson, Jay P., Leslie H. Vincent, David M. Hardesty, and William O. Bearden (2009), “Objective and Subjective Knowledge Relationships: A Quantitative Analysis of Consumer Research Findings,” Journal of Consumer Research, 35(5), 864-876.

Esteky, Sina (2022), “Risk on the Edge: The Effect of Relative Spatial Location on Consumer Preferences and Choices,” Journal of Marketing Research, online

Gist, Marilyn E., and Terence R. Mitchell (1992), “Self-Efficacy: A Theoretical Analysis of its Determinants and Malleability,” Academy of Management Review, 17(2), 183-211.

Hadar, Liat, Sanjay Sood, and Craig R. Fox (2013), “Subjective Knowledge in Consumer Financial Decisions,” Journal of Marketing Research, 50(3), 303-316.

Han, Kyuhong, Jihye Jung, Vikas Mittal, Jinyong Daniel Zyung, and Hajo Adam (2019), “Political Identity and Financial Risk Taking: Insights from Social Dominance Orientation,” Journal of Marketing Research, 56(4), 581-601.

He, Xin, J. Jeffrey Inman, and Vikas Mittal (2008), “Gender Jeopardy in Financial Risk Taking,” Journal of Marketing Research, 45(4), 414-424.

Jami, Ata (2019), “Having Control Over and Above Situations: The Influence of Elevated Viewpoints on Risk Taking,” Journal of Marketing Research, 56(2), 230-244.

Krueger Jr, Norris, and Peter R. Dickson (1994), “How Believing in Ourselves Increases Risk Taking: Perceived Self‐Efficacy and Opportunity Recognition,” Decision Sciences, 25(3), 385-400.

Mittal, Vikas, William T. Ross Jr, and Michael Tsiros (2000), “The Role of Issue Valence and Issue Capability in Determining Effort Investment,” Journal of Marketing Research, 39(4), 455-468.

More from Impact at JMR