Self esteem may be defined simply as favorable or unfavorable attitude towards self (Rosenberg, 1965). It can also be defined as the perception of self worth, or the extent to which a person values, prizes, or appreciates the self (Blascovich & Tomaka, 1991). Any individual could have only two kinds of self-esteem (Robins, Hendin, & Trzesniewski, 2001).
Certain psycho social factors also have been shown to influence financial risk taking.
Types of self esteem
- Low Self esteem
It is a hopeless condition that keeps individuals from realizing their full potential. A person, who has low self-esteem, feels incompetent, unworthy, and incapable. In fact, persons with it feel so poorly about them, these feelings make the person remain with continuous low self esteem. Shilling (1999) states that it is a trait of financially unsuccessful people, which in turn results in low risk-taking ability.
- High Self esteem
People who have high self-esteem generally feel good about their ability to participate, confident in social situations and happy with the way. Generally they have following things, they are confident, they have good sense of self-worth, they are positive, encouraging and supportive to others, and they possess good communication. They are extrovert, energetic, ambitious, and they learn from their mistakes. These things give them to strength and flexibility to take charge of their lives and grow from mistakes without any fear [Cutler, N. E. (1995)].
Impact of self esteem
Self esteem plays an important role in how well the people do in their lives, which is not obvious to them, so that it can determine how successful they become. Shilling (1999) also states that people with higher self esteem seek to diversify their investment portfolio. People with higher levels of self-esteem will be motivated to preserve and improve their socioeconomic status. As a result, individuals with higher levels of self-esteem may derive a greater utility stream from wealth due to the status and self image enhancement it provides. Korman (1970) finds that individuals with it are likely to be higher achievers in all performance oriented tasks than those with lower self-esteem because they will be more conscientious about better performance in order to maintain perceived self worth. Studies have also related self esteem to investment decisions and trading practices of investors. Assuming that men have higher self-esteem, they are found to trade excessively and under perform in this context (Barber and Odean, 2001).
- Robinson, P.B., Stimpson, D., Heufner, J. & Hunt, H. (1991). An attitude approach to prediction of entrepreneurship. Entrepreneurship: Theory and Practice, 15, 13 to 31.
- Cutler, N. E. Journal of the American Society of CLU & ChFC, 1995.