Feedback, Framing, Personality and Risk Attitude -- Experiments on Factors Affecting Financial Optimism

Posted: 7 Aug 2013

See all articles by Jiayi Balasuriya

Jiayi Balasuriya

University of Hertfordshire - Business School; City University of London - Sir John Cass Business School

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Peter Ayton

City University London

Date Written: July 2013

Abstract

This paper explores whether and how feedback, framing, personality, and risk attitude could affect financial optimism in an enclosed experimental environment. Evidence in this paper shows that feedback on investment performance affects financial optimism depending on whether people forecast returns in absolute values or in relative terms. Financial optimism is increased upon receiving negative feedback when participants forecast in absolute values, while receiving negative feedback reduces financial optimism when participants forecast in relative terms on portfolio return. We find framing of the experiments affects one’s financial optimism level directly and forecasting in absolute terms is more likely to result in optimistic expectations. We also find financial optimism correlates with certain personality traits, such as extraversion, modesty and altruism. Financial optimism is also strongly positively associated with an attitude for risk tolerance.

Keywords: Financial optimism, Individual portfolio choice, Psychology and financial decision making, Asset allocation, Forecasting

Suggested Citation

Balasuriya, Jiayi and Muradoglu, Yaz Gulnur and Ayton, Peter, Feedback, Framing, Personality and Risk Attitude -- Experiments on Factors Affecting Financial Optimism (July 2013). Available at SSRN: https://ssrn.com/abstract=2307068 or http://dx.doi.org/10.2139/ssrn.2307068

Jiayi Balasuriya (Contact Author)

University of Hertfordshire - Business School ( email )

College Lane
Hatfield, Hertfordshire Al10 9AB
United Kingdom

City University of London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Yaz Gulnur Muradoglu

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
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+44 20 7040 8853 (Fax)

Peter Ayton

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

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