'And Lead Us Not into Temptation': Presentation Formats and the Choice of Risky Alternatives

30 Pages Posted: 19 Jun 2014

See all articles by Franca Glenzer

Franca Glenzer

HEC Montreal - Retirement and Savings Institute

Helmut Gründl

Goethe University Frankfurt - Department of Finance; International Center for Insurance Regulation

Christian Wilde

Goethe University Frankfurt - Department of Finance

Date Written: June 17, 2014

Abstract

This paper uses laboratory experiments to provide a systematic analysis of how different presentation formats affect individuals’ investment decisions. The results indicate that the type of presentation as well as personal characteristics influence both, the consistency of decisions and the riskiness of investment choices. However, while personal characteristics have a larger impact on consistency, the chosen risk level is determined more by framing effects. On the level of personal characteristics, participants’ decisions show that better financial literacy and a better understanding of the presentation format enhance consistency and thus decision quality. Moreover, female participants on average make less consistent decisions and tend to prefer less risky alternatives. On the level of framing dimensions, subjects choose riskier investments when possible outcomes are shown in absolute values rather than rates of return and when the loss potential is less obvious. In particular, reducing the emphasis on downside risk and upside potential simultaneously leads to a substantial increase in risk taking.

Keywords: Behavioral finance, decision under risk, framing effects

Suggested Citation

Glenzer, Franca and Gründl, Helmut and Wilde, Christian, 'And Lead Us Not into Temptation': Presentation Formats and the Choice of Risky Alternatives (June 17, 2014). Available at SSRN: https://ssrn.com/abstract=2455861 or http://dx.doi.org/10.2139/ssrn.2455861

Franca Glenzer

HEC Montreal - Retirement and Savings Institute ( email )

United States

Helmut Gründl (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://https://www.wiwi.uni-frankfurt.de/en/departments/finance/home.html

International Center for Insurance Regulation ( email )

House of Finance
Campus Westend, Goethe University
Frankfurt am Main, D-60323
Germany

HOME PAGE: http://www.icir.de

Christian Wilde

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

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