Using Rasch Measurement Theory to evaluate the psychometric quality of a financial risk tolerance scale
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The development, evaluation, and improvement of financial risk tolerance (FRT) assessments are pursued goals among scholars and professionals, particularly in the fields of financial planning and consumer economics. Accurate and consistent FRT measures are important for financial planning and counseling professionals committed to advising consumers and researchers dedicated to understanding and predicting individuals’ financial decisions and behaviors under risk. In an effort to foster continuing discussions on ways to measure FRT with greater reliability and validity, and to advance FRT assessment in general, this research presents a novel paradigm to measurement with the expectation that the procedure will lead to the development of new measures, and the evaluation, and refinement of existing FRT measures. This dissertation purposed two main objectives. The first is to introduce Rasch Measurement Theory as a theoretically strong and probabilistic model, and one that may serve as an alternative to Classical Test Theory for the measurement of FRT. A thorough description of this model detailing its robust theoretical assumptions, analysis about its advantages, and discussion on its utility for improving FRT measures is presented. The second purpose is to demonstrate an application of Rasch Measurement Theory by using a FRT measure in the context of financial planning, and consumer economics. By using a psychometric analysis based on Rasch Measurement Theory, the scale properties were evaluated and refined. This yielded an improved, robust, and psychometrically sound version of the Grable and Lytton’s (1999) FRT scale.