A Brief History of Personality Testing - Behavioral Finance Chapter 5
Chapter 4 covered the history of personality theory. Now in Chapter 5 of Behavioral Finance and Investor Types, Michael Pompian moves to the practical side: how do you actually test for personality? Because having a theory is nice, but you need a way to measure it. And that’s what this chapter is about.
Two Kinds of Tests
Pompian starts with a simple split. There are two basic types of personality tests: objective and projective.
Objective tests are your standard questionnaire format. True/false, multiple choice, pick one answer. They’re structured, easy to score, and produce consistent results. You can run numbers on them. They’re reliable.
Projective tests are the opposite. Open-ended, unstructured. The idea is you “project” your personality onto vague prompts. Think inkblot tests. The problem? Scoring depends on whoever is reading your answers. Two psychologists can look at the same response and reach different conclusions. Not great for consistency.
For investor personality assessment, Pompian uses objective tests. Makes sense. You want something repeatable and comparable across clients.
The First Personality Test: Woodsworth Personal Data Sheet
Here’s where it all started. During World War I, R. S. Woodsworth created what was basically the first personality questionnaire. The goal was to screen soldiers for shell shock susceptibility before sending them to the front lines.
The military figured that psychological breakdown was just as bad for unit performance as low intelligence. So they needed a quick way to flag vulnerable soldiers. Sample questions included things like “Do you feel sad or low-spirited most of the time?” and “Are you ever bothered with the feeling that people are reading your thoughts?”
Simple stuff. But it was the starting point for everything that came after.
Edwards Personality Inventory
This one took a more scientific approach. It started with 2,824 items. Yes, almost three thousand questions. Then using factor analysis (basically a statistical method to find patterns), researchers boiled those down to 216 categories, and then further reduced to 18 personality traits.
The questions were pretty direct. For measuring sensitivity: “Am I sensitive and easily hurt by others?” Not subtle, but it worked.
Myers-Briggs: The One Everyone Knows
If you’ve ever been told you’re an INTJ or an ENFP, that’s Myers-Briggs. Pompian covers this one in detail because it’s probably the most widely known personality test out there.
The test came from Carl Jung’s personality theory (covered in Chapter 4). Jung proposed that personality differences come from two main dimensions: how you take in information and whether you’re an introvert or extrovert. Isabel Briggs Myers and her team built on this in the 1940s and added one more dimension.
The MBTI measures four scales:
- Introversion (I) vs. Extroversion (E) - where you get your energy
- Sensing (S) vs. Intuition (N) - how you take in information
- Thinking (T) vs. Feeling (F) - how you make decisions
- Judging (J) vs. Perceiving (P) - how you organize your life
Combine those four and you get 16 possible personality types. No type is “better” than another. The test has been shown to be both valid and reliable over decades of use.
Eysenck Personality Questionnaire
Hans Eysenck took a different approach. His questionnaire measured just three dimensions:
- E (Extraversion) - high scorers are sociable, impulsive, risk-taking. Low scorers are quiet, organized, reliable.
- N (Neuroticism) - high scorers are moody, anxious, emotionally reactive. Low scorers are calm and even-tempered.
- P (Psychoticism) - this one sounds scary but Eysenck concluded most people have at least a small psychotic tendency. High scorers are solitary, hostile, and (interestingly) creative.
Here’s the thing that’s neat: Eysenck found his E and N dimensions mapped almost perfectly onto the four temperaments that Hippocrates proposed thousands of years ago. The stable extrovert is sanguine, the unstable extrovert is choleric, the unstable introvert is melancholic, the stable introvert is phlegmatic. Ancient wisdom backed up by modern stats.
MMPI: The Clinical One
The Minnesota Multiphasic Personality Inventory was built in the 1930s to diagnose mental disorders. Over time it expanded to assess “normal” people for career guidance, military aptitude, and even marriage counseling.
What’s interesting about the MMPI is that it measures what people think is going on in their lives, not what’s actually happening. Questions like “I believe I am being plotted against” tell you about someone’s psychological state regardless of whether anyone is actually plotting.
The test has been updated multiple times. Later versions added “validity scales” to catch people who just pick the most socially acceptable answer. This became important for job interviews where people have every reason to lie.
One criticism: the test has been called out for underrepresenting Asian-American and Hispanic populations.
Cattell’s 16PF
Raymond Cattell started with a list of 4,500 personality-related words. Then through a brutal process of elimination (synonyms out, redundancies out, statistical reduction), he got it down to 16 primary personality factors. Things like warmth, reasoning, emotional stability, dominance, and so on.
The 16PF test is still used in business for hiring and promotions, in schools for student development, and in clinical settings for therapy. The 1970 handbook actually listed ideal personality profiles for 125 different jobs.
The Big Five (NEO Personality Inventory)
The chapter wraps up with the Five-Factor Model, also known as the Big Five. Psychologists Robert McCrae and Paul Costa developed this, measuring five dimensions: Neuroticism, Extraversion, Openness to Experience, Agreeableness, and Conscientiousness.
What sets their approach apart are four assumptions: personality follows patterns that can be detected, people can accurately report their own behavior, the scales are wide enough to capture outliers, and human behavior still has a spontaneous element that no test fully captures.
Why This Matters for Investors
So here’s the point. None of these tests were designed for investing. They were built for the military, for clinical psychology, for hiring decisions. But the techniques behind them, the way they break personality into measurable dimensions using structured questionnaires, that’s exactly what Pompian adapts in the next chapter to create his Behavioral Investor Type framework.
You figure out where someone falls on certain personality scales. Then you predict which behavioral biases they’re most likely to have. Then you build an investment plan that accounts for those biases.
The testing tools exist. They’ve been refined for over a hundred years. Now it’s time to apply them to money.