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The Big Five and Behavioral Finance

Contributor Michael Pompian introduces a new series that examines the relationship between the "Big Five" personality traits and the behavioral biases of investors.

My earliest work in the field of behavioral finance in the late 1990s examined the correlations between investor behavior biases and the Myers-Briggs Type Indicator, or MBTI. I found some statistically significant relationships between some of the Myers-Briggs traits, such as introversion and extroversion, and behavioral biases, such as loss aversion. (You can find that paper on my website, Sunpointe Investments, if you are interested.)

Over the years, I have followed a debate between the effectiveness of the Myers-Briggs test versus another widely used personality test, the Big Five. More recently, the debate has intensified. I decided to conduct a study of the the Big Five. Specifically, I studied 120 investors, examining the relationship between the Big Five and investor biases. This is the first article in a new series examining the traits and the findings of the study.