Personality Differences and Investment Decision-Making

We administer a survey to thousands of affluent Americans about their personalities and investments. The Big Five personality traits can explain the heterogeneity among investors in their beliefs about the stock market and economy, risk preferences, and social-interaction tendencies. Two personality traits---Neuroticism and Openness---stand out in their explanatory powers for equity investments. Both investors with high Neuroticism and those with low Openness tend to allocate less to equity. While the former behavior is due to pessimism about future stock returns, the latter is due to high risk aversion. We find consistent out-of-sample evidence in a representative panel of Australian households.