Academy of Financial Services
The assessment of financial risk tolerance is a topic of great interest in the financial services profession. Numerous scales and techniques have been developed to facilitate the measurement of risk attitudes. Cronbach’s alpha has traditionally been used as a measure of scale reliability. Over the past decade, however, psychometricians have published concerns about the ongoing use of Cronbach’s alpha as a robust measure of scale reliability. In its place, some have argued that reliability estimates should be based on Greatest Lower Bound and omega. The purpose of this paper is to describe these alternative reliability measures, in comparison to Cronbach’s alpha, for a widely used financial risk-tolerance scale. Using a large dataset with 179,450 observations, findings from this study suggest that while estimates derived on the basis of Cronbach’s alpha, the GLB, and omega differ, for the most part, reliability estimates across the measures are close.
Author(s): Wookjae Heo, John E. Grable, Michael Roszkowski, Abed Rabbani