Self-reported risk tolerance is a measurement of an individual's willingness to accept risk, making it a valuable tool for financial planners and researchers alike. Prior subjective risk tolerance measures have lacked a rigorous connection to economic theory. This study presents an improved measurement of subjective risk tolerance based on economic theory and discusses its link to relative risk aversion. Results from a web-based survey are presented and compared with results from previous studies using other risk tolerance measurements. The new measure allows for a wider possible range of risk tolerance to be obtained, with important implications for short-term investing.
Key words: Risk tolerance, Risk aversion, Economic model

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1. Sherman D. Hanna, Professor, Consumer Sciences Department, The Ohio State University, 1787 Neil Ave., Columbus, OH 43210-1295. Phone: 614-292-4584. Fax: 603-457-6577. E-mail: hanna.1@osu.edu

2. Michael S. Gutter, Assistant Professor, Department of Consumer Science, University of Wisconsin-Madison, 1300 Linden Drive Room 370F Phone: 608-262-5498 Fax: 608-265-6048. Email: msgutter@facstaff.wisc.edu

3.  Jessie X. Fan, Associate Professor, Department of Family and Consumer Studies, University of Utah, 225 South 1400 East, Room 228 AEB, Salt Lake City, UT 84112-0080. Phone: 801-581-4170. Fax: 801-581-5156. E-mail: fan@fcs.utah.edu