Domain‐Specific Predictors of Financial Risk Taking: Revisiting the Role of Knowledge, Experience, and Financial Risk Tolerance

ABSTRACT This study explores the factors associated with financial risk tolerance using data from a panel of 1334 investors collected between February and May 2023 across Australia, the United Kingdom, and the United States. Participants completed surveys at two different time points. The surveys included questions focused on measuring financial risk tolerance, subjective financial knowledge, objective financial knowledge, investment experience, cognitive reflection, and various demographic variables. Findings based on hierarchical partitioning models support the Domain‐Specificity Principle, which highlights how domain‐specific factors like subjective financial knowledge and investment experience are more predictive of financial risk tolerance than generalized characteristics such as education level or cognitive ability. Additionally, this study demonstrates the mediating effect of investment experience on the relationship between subjective financial knowledge and financial risk tolerance. In total, results underscore the importance of using domain‐specific investor characteristics rather than non‐specific attributes when studying financial decision‐making and the role of risk tolerance in describing investor outcomes.