Improving Investment Decisions with Simulated Experience

Review of Finance, Forthcoming

41 Pages Posted: 21 Nov 2012 Last revised: 10 Apr 2014

See all articles by Meike Bradbury

Meike Bradbury

University of Zurich - Department of Banking and Finance

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute

Stefan Zeisberger

Radboud University; University of Zurich

Date Written: April 9, 2014

Abstract

We apply a new and innovative approach to communicating risks associated with financial products that should support investors in making better investment decisions. In our experiments, participants are able to gain “simulated experience” by random sampling of a previously described return distribution. We find that simulated experience considerably improves participants’ understanding of the underlying risk-return profile and prompts them to reconsider their investment decisions and to choose riskier financial products without regretting their higher risk-taking behavior afterwards. This method of experienced-based learning has high potential for being integrated into real-world applications and services.

Keywords: behavioral finance, experience sampling, investment decision, risk tolerance

JEL Classification: D81, G11

Suggested Citation

Bradbury, Meike and Hens, Thorsten and Zeisberger, Stefan, Improving Investment Decisions with Simulated Experience (April 9, 2014). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2179276 or http://dx.doi.org/10.2139/ssrn.2179276

Meike Bradbury

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Thorsten Hens

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zurich, 8032
Switzerland
+41-44 634 37 06 (Phone)

Norwegian School of Economics and Business Administration (NHH)

Helleveien 30
Bergen, 5045
Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Stefan Zeisberger (Contact Author)

Radboud University ( email )

Nijmegen
Netherlands

University of Zurich ( email )

Zürich
Switzerland

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