The Role of Experience Sampling and Graphical Displays on One`s Investment Risk Taking Appetite

Kaufmann, Christine ; Weber, Martin ; Haisley, Emily Celia

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Document Type: Article
Year of publication: 2013
The title of a journal, publication series: Management Science
Volume: 59
Issue number: 2
Page range: 323-340
Place of publication: Cantonsville, MD
Publishing house: INFORMS
ISSN: 0025-1909 , 1526-5501
Publication language: English
Institution: Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber 1993-2017)
Subject: 000 Generalities
Classification: JEL: G11,
Keywords (English): Risk Taking , Risk Attitude , Risk Perception , Presentation Format , Decision Comprehension , Experience-Description Gap
Abstract: Financial professionals have a great deal of discretion concerning how to relay information about the risk of financial products to their clients. This paper introduces a new risk tool to communicate the risk of investment products and examines how different risk presentation modes influence risk taking behavior and investors’ recall ability of the risk-return profile of financial products. We analyze four different ways of communicating risk: (i) numerical descriptions, (ii) experience sampling, (iii) graphical displays, and (iv) a combination of these formats in the ‘risk tool’. Participants receive information about a risky and a risk free fund and make an allocation between the two in an experimental investment portfolio. We find that risky allocations are elevated in both the risk tool and experience sampling conditions. Greater risky allocations in the risk tool are associated with decreased risk perception, increased confidence in the risky fund, and a lower estimation of the probability of a loss. In addition to these favorable perceptions of the risky fund, participants in the risk tool are more accurate on recall questions regarding the expected return and the probability of a loss. We find no evidence of greater dissatisfaction with returns in these conditions and observe a willingness to take on similar levels of risk in subsequent allocations.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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