The alpha and omega of financial risk‐tolerance assessment

Abstract

Over the past three decades, numerous scaling and attitudinal measurement techniques have been developed to facilitate the assessment of an individual's financial risk tolerance. Cronbach's alpha has traditionally been used as the primary measure of scale reliability for assessment tools that have been developed using classical psychometric theory. Recently, however, psychometricians have raised concerns about the ongoing use of Cronbach's alpha as a robust measure of scale reliability. In its place, some have argued that reliability estimates should be based on greatest lower bound (GLB) and omega estimations.The purpose of this paper is to describe and compare these alternative reliability measures to Cronbach's alpha for a widely used research-focused financial risk-tolerance scale. Using a dataset with 179,450 observations, findings from this study suggest that while estimates based on Cronbach's alpha, omega, and the GLB do differ, for the most part, reliability estimates across the measures are more similar than dissimilar.

Modifikasi dan Validasi Student-Life Stress Inventory pada Mahasiswa Selama Pembelajaran Online COVID-19

“…Selain itu, uji reliabilitas dengan pendekatan McDonald Omega menghasilkan nilai 0.853 (>0.7) sehingga dapat dikatakan reliabel. Penggunaan reliabilitas McDonald Omega digunakan untuk mengoreksi kelemahan pada rumus Alpha-Cronbach (Heo et al, 2022).…”

Personality, financial risk‐taking attitude, and older individuals' stock investment decisions

“…Investors who are risk tolerant can accept more risk and uncertainty when making financial decisions (Finke & Huston, 2003). A large amount of literature has shown that financial risk preference plays an important role in individuals' stock market participation and portfolio decisions (Heo et al, 2022; Hong et al, 2004; Lim & Kim, 2018; Pinjisakikool, 2018; Vissing‐Jørgensen & Attanasio, 2003). Financial risk preference is a situational trait within this study that is directly connected to investors' financial decisions.…”

The Moderating Effect of Financial Knowledge on Financial Risk Tolerance

“…In alignment with what has been reported in the literature, the average score fell between 27 and 28. Over a wide variety of studies, the scale has shown acceptable levels of validity and reliability (see Nunnally and Bernstein (1994) for standards of acceptability), with Cronbach's alpha scores ranging from 0.70 to over 0.80 (Heo et al 2022;Kuzniak et al 2015). In this study, Cronbach's alpha scores varied based on the age of a respondent.…”

“…Those with a greater degree of risk tolerance are more likely to obtain higher returns in exchange for more risk (Brayman et al 2017;Nguyen et al 2019;Reddy and Mahapatra 2017). The extant literature suggests that financial knowledge and financial risk tolerance are positively associated (Heo et al 2022;Hermansson and Jonsson 2021).…”