Moment Risks: Investment for Self and for a Firm

Extreme risk taking by agents has been the subject of intense scrutiny since the 2007 financial crisis. Many have alleged that investing for a firm led to preferences for more risk taking. To test this claim, we submitted a questionnaire to a sample of 715 business school students, testing for investment preferences when investing for self and for a firm over the first four moments of the distribution of returns. We find evidence of standard deviation aversion, skewness seeking, and kurtosis seeking when investing for self. The overall kurtosis seeking of our sample as a whole is mainly driven by standard deviation lovers, skewness seekers, and males. When investing for a firm, we do not see more risk taking but rather a shift toward neutrality of preferences for standard deviation and kurtosis, which is congruent with the risk-as-feelings hypothesis. Our study also underlines the impact of financial expertise in the reduction of risk taking, both when investing for self and for the firm.