A Note on Receptiveness to Loss in Structured Investment

Abstract

The close to zero interest rates past the economic crisis open possibility to directly test for loss aversion in framed field structured investment tasks. We use a Web-survey platform to compare the willingness to invest in LOSS-GAIN deposits that pay positive return G in favorable market conditions, but bring a loss L in the complementary states, to the valuation of parallel GAIN-ONLY deposits that pay small positive return G-|L| in the favorable scenario but bring zero return in the opposite case. While common models of choice predict that investors should refrain from LOSS-GAIN designs but may strongly approve the GAIN-ONLY, the participants rank the LOSS-GAIN significantly higher and show similarly strong willingness to invest in both versions. The results suggest that loss aversion may attenuate in structured investment context, where losses come up with larger compensating gains.

Keywords: Limited loss aversion; Structured investment, Prospect Theory

JEL Classification: D81; G11; C93