Investment decisions are very difficult because they involve money and can impact our quality of life. According to the axioms of rationality, different but equivalent informa- tion formats should not affect investment strategies. The authors perform two experi- ments here, and find evidence of a strong absolute magnitude effect on investment de- cisions. In Experiment 1, participants (students) chose to sell a losing fund more often when returns were expressed as a percentage of variation between the buying value and the actual value (e.g., 24%) than when they were expressed as a monetary differ- ence between the buying price and the actual price (e.g., $0.24). In the context of the experiment, the percentage format decreased the disposition effect significantly. Fur- thermore, describing the stock returns as ratios (e.g., 1⁄4) increased the tendency to- ward the status quo bias. In Experiment 2, the authors showed that the absolute mag- nitude of the numbers shaped participants’ satisfaction with fund returns, and was responsible for the different choices of investment strategies.
Numerical information format and investment decisions: Implications for the disposition effect and the status quo bias
RUBALTELLI, ENRICO;
2005
Abstract
Investment decisions are very difficult because they involve money and can impact our quality of life. According to the axioms of rationality, different but equivalent informa- tion formats should not affect investment strategies. The authors perform two experi- ments here, and find evidence of a strong absolute magnitude effect on investment de- cisions. In Experiment 1, participants (students) chose to sell a losing fund more often when returns were expressed as a percentage of variation between the buying value and the actual value (e.g., 24%) than when they were expressed as a monetary differ- ence between the buying price and the actual price (e.g., $0.24). In the context of the experiment, the percentage format decreased the disposition effect significantly. Fur- thermore, describing the stock returns as ratios (e.g., 1⁄4) increased the tendency to- ward the status quo bias. In Experiment 2, the authors showed that the absolute mag- nitude of the numbers shaped participants’ satisfaction with fund returns, and was responsible for the different choices of investment strategies.Pubblicazioni consigliate
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.