40 Pages Posted: 9 May 2015 Last revised: 12 Jul 2016
Date Written: July 12, 2016
Risk simulations based on experience sampling were found to significantly improve initial investment decisions. We analyze the advantages and limitations of risk simulations in a setting in which investors can adjust their investment strategy before the end of the investment horizon. Our experimental results underscore the positive effects of risk simulations on investors’ understanding of the risk-return trade-off. Furthermore, we find that investors who are informed via description require multiple investment periods until they show stable average risk-taking behavior and similar allocations to the risky asset as investors informed via risk simulations. We do not find any effects of initial simulation-based learning on investors’ trading volume or trading behavior with regard to previous investment outcomes.
Keywords: Behavioral finance, simulated experience, experience sampling, investment decision, risk communication, financial advice
JEL Classification: D81; G11
Suggested Citation: Suggested Citation
Bradbury, Meike and Hens, Thorsten and Zeisberger, Stefan, Do Risk Simulations Lead to Persistently Better Investment Decisions? (July 12, 2016). Available at SSRN: https://ssrn.com/abstract=2603780 or http://dx.doi.org/10.2139/ssrn.2603780
By Andrew Ang