The very first time I heard about the Big Five in the context of behavioural finance, I could not make sense of it. My mental association was with the Big Five game animals of Africa.
I discovered that this was with reference to the 5-factor theory that described the essential traits or dimensions that serve as the building blocks of personality.
So I was pleasantly surprised to read the work of Michael Pompian on Morningstar.com where he digs deeper into this subject.
The Big Five doesn't attempt to understand what people are thinking; it focuses on preferences of actual behaviour. For example, the following is a question about openness: "Do you like trying new things or do you have a routine you stick to?" As you can see, the Big Five is more about behavioral tendencies than it is about cognitive traits.
The Big Five traits sourced from American Psychological Association
Many personality psychologists over the years have boiled down the myriad human personality traits into 5 basic dimensions of personality, which you can see above. Each represents a range between two endpoints. For example, extraversion represents a continuum between maximum extraversion and maximum introversion.
Openness
This trait's primary characteristics are imagination, curiosity, and creativity. People who are high in openness tend to have a broad range of interests and skills. They are inquisitive about the world and other people--and are eager to learn new things and have new experiences. "Openness" people tend to be adventurous and creative. People low in this trait are more traditional and may struggle with abstract thinking.
Conscientiousness
People high in this trait are thoughtful, goal oriented, strong with impulse control, and disciplined. Those high in conscientiousness are well organized and pay attention to detail. These people are planners and think about how their behaviour affects others. Lastly, they are mindful of deadlines.
Extraversion
Extraversion (also known as extroversion) is a trait described by talkativeness, assertiveness, and expressiveness. People high in extraversion are outgoing and get energy from the people around them. Being in social situations makes them feel energetic or even excited. People who are low in extraversion (also known as introverted) tend to be reserved and have to expend energy in social settings. They often prefer to be "in the corner" away from others.
Agreeableness
People high in agreeableness tend to be trustworthy, kind, affectionate, and altruistic. These folks tend to be cooperative and easy to work with, while those low in this trait tend to be more competitive and/or manipulative.
Neuroticism
Neuroticism is a trait characterized by sadness, moodiness, and emotional instability. Individuals who are high in this trait tend to experience mood swings, anxiety, irritability, and sadness. Those low in this trait tend to be more emotionally resilient.
Summary
Below is a helpful chart that summarizes in single words each of the Big Five personality traits. To better understand the Big Five, you may want to take the test.
All the above information has been extracted from The Big Five and Behavioral Finance and A close look at the Big Five personality traits.
The writer, Michael Pompian, is the founder and chief investment officer of Sunpointe Investments, an investment advisor to ultra-affluent clients and family offices. He is also the author of Behavioral Finance and Wealth Management.
