Framing effects and risk perception: The effect of prior performance presentation format on investment fund choice

Diacon, Stephen; Hasseldine, John

doi:10.1016/j.joep.2006.01.003

Cited by 69 publications

(69 citation statements)

References 29 publications

(36 reference statements)

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“…In line with Diacon & Hasseldine (2007) we find that the past performance is an important decision making criteria for investors. By withholding the information from investors it has to be expected that investors take efforts to see the past performance anyway.…”

Section: Discussionsupporting

confidence: 81%

“…The study of Diacon & Hasseldine (2007) is most similar to this paper. They compare return bar with price line charts, and additionally test the effect of time horizons shown in the past performance chart.…”

Section: Literature Reviewsupporting

confidence: 72%

“…We continue with literature on the multi-dimensionality of risk perception, which needs to be taken into account when attempting to communicate risk. We conclude with a summary of the literature which shares the most similarities to this paper, namely Weber et al (2005) and Diacon & Hasseldine (2007).…”

Section: Literature Reviewmentioning

confidence: 52%

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Framing Effects and Risk Perception: Testing Graphical Representations of Risk for the KIID

Sttssel

Meier

2015

SSRN Journal

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In this paper we analyze which graphical representation of risk is most effective in supporting investors to assess the risk and return characteristics of a fund. Moreover, we test on which criteria the investors base their risk taking behavior. To this end we compare return bar charts and price line charts, combined with some additional information such as a risk scale or a gain and loss range.We find that the risk communication with bar charts performs relatively well, except with regard to communicating the possibility of losses. Furthermore, we find that people generally underestimate risks and overestimate return. We additionally find that risk perception has the strongest influence on risk taking behavior, and in particular that a higher risk perception leads to less risk taking.

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Section: Discussionsupporting

confidence: 81%

Section: Literature Reviewsupporting

confidence: 72%

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Framing Effects and Risk Perception: Testing Graphical Representations of Risk for the KIID

Sttssel

Meier

2015

SSRN Journal

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“…People perceive assets to be less risky if names are included (E. Weber et al (2005)) and risk perceptions dier if the riskiness is presented in dierent formats (e.g. Haisley et al, 2011;Diacon and Hasseldine, 2007), e.g. in bar charts versus distributions.…”

Section: More Recently the New European Ucits Directive (European Pamentioning

confidence: 99%

“…Inconsistent reactions to dierent decision frames have been observed in several studies. Diacon and Hasseldine (2007) for instance show for example that risk perception is inuenced by the presentation format (past return information as fund values versus percentage yields). In our experiment three risky assets are considered, all of which could be transferred into each other by the participants; subjects are hence in a similar decision context.…”

Section: Literature Reviewmentioning

confidence: 99%

Investors Care About Risk, But Can't Cope with Volatility

2011

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Following the classical portfolio theory all an investor has to do for an optimal investment is to determine his risk attitude. This allows him to nd his point on the capital market line by combining a risk-free asset with the market portfolio. We investigate the following research questions in an experimental set-up: Do private investors see a relationship between risk attitude and the amount invested risky at all and do they adjust their investments if provided with dierent risk levels of the risky asset? To answer these questions we ask subjects in a between subject design to allocate a certain amount between a risky and a risk-free asset. Risky assets dier between conditions, but can be transformed into each other by combining them with the risk-free asset. We nd that mainly investors risk attitude, but also their risk perception, and the investment horizon are strong predictors for risk taking. Indeed, investors do not appear to be naïve, but they do something sensitive. Nevertheless, we observe a strong framing eect: investors choose almost the same allocation to the risky asset independently of changes in its risk-return prole thus ending up with signicantly dierent volatilities. Feedback does not mitigate the framing eect. The eect is somewhat smaller for investors with a high nancial literacy. Overall, people seem to use two mental accounts, one for the risk-free and one for the risky investment with the risk attitude determining the percentage allocation to the risky asset and not the chosen portfolio volatility. * University of Mannheim, Chair of Banking, contact: ehm@bank.bwl.uni-mannheim.de * * University of Mannheim, Chair of Banking, contact: kaufmann@bank.bwl.uni-mannheim.de * * * University of Mannheim, Chair of Banking and CEPR, London. contact: weber@bank.bwl.unimannheim.de We thank Daniel Foos, Markus Glaser, Dan Goldstein, Thomas Langer, Daniel Smith, and Sascha Steen, as well as all seminar participants at the 2nd Annual Boulder Summer Conference on Financial Decision Making, the SPUDM conference 2011, the LMU Munich, the University of Mannheim, and the University of Münster. We are grateful to the German Consumer Protection Agency (Verbraucherzentrale Bundesverband) for hosting a common press conference leading to signicant media coverage and the promotion of our on-line questionnaire and to Dominic Hiller for programming the experiment.

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Do Investors Show an Attentional Bias toward Past Performance? An Eye-Tracking Experiment on Visual Attention to Mutual Fund Disclosures in Simplified Fund Prospectuses

Hüsser¹,

Wirth²

2016

Financial Literacy and the Limits of Financial Decision-Making

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Framing effects and risk perception: The effect of prior performance presentation format on investment fund choice

Cited by 69 publications

References 29 publications

Framing Effects and Risk Perception: Testing Graphical Representations of Risk for the KIID

Framing Effects and Risk Perception: Testing Graphical Representations of Risk for the KIID

Investors Care About Risk, But Can't Cope with Volatility

Do Investors Show an Attentional Bias toward Past Performance? An Eye-Tracking Experiment on Visual Attention to Mutual Fund Disclosures in Simplified Fund Prospectuses

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