ABSTRACT
Personality traits and other noncognitive abilities play an important role in financial decisions. Fundamental differences in personality are related to the neuron volume in different regions of the brain, including the prefrontal cortex, hippocampus, and cerebellum. The “big five” personality traits are extroversion, agreeableness, neuroticism, openness, and conscientiousness. Extroversion is consistently positively related to risk taking, while neuroticism is related to risk aversion. Furthermore, extroversion is related to higher portfolio returns. Psychopathy and the other “dark triad” personality traits are prevalent in the financial industry and typically have negative consequences for firm performance. Finally, overconfidence and optimism can cause chief executive officers to make irrational decisions because they overestimate their abilities.
