The Impact of Choice Architecture on Portfolio Allocations: Experimental Evidence

45 Pages Posted: 27 Apr 2021 Last revised: 7 Jul 2022

See all articles by Sebastian Bachler

Sebastian Bachler

University of Innsbruck

Felix Holzmeister

University of Innsbruck - Department of Economics

Michael Razen

University of Innsbruck

Matthias Stefan

University of Innsbruck

Date Written: July 6, 2021

Abstract

We analyze whether choice architecture improves investors' financial decision-making in an investment experiment. To this end, we implement a 2x2 factorial design where we test the effect of presentation format (graphical vs. tabular) and reduction of complexity (asset selection vs. predefined portfolios) on decision-making quality and investment performance. Overall, our results suggest a differential effect of presentation format and complexity reduction: First, we find that a graphical presentation format lowers decision-making quality when the environment is more complex (asset selection). Second, within graphical presentation, decision-making quality is higher when the decision situation is simplified (predefined portfolios). In addition, we find that a simplified decision environment leads to higher risk-adjusted returns and reduces the relevance of fluid intelligence and numeracy for decision-making quality.

Keywords: Investment Decision, Presentation Format, Choice Architecture, Decision-Making Quality, Experimental Finance

JEL Classification: G11, G41, G50

Suggested Citation

Bachler, Sebastian and Holzmeister, Felix and Razen, Michael and Stefan, Matthias, The Impact of Choice Architecture on Portfolio Allocations: Experimental Evidence (July 6, 2021). Available at SSRN: https://ssrn.com/abstract=3829551 or http://dx.doi.org/10.2139/ssrn.3829551

Sebastian Bachler

University of Innsbruck ( email )

Innsbruck
Austria

Felix Holzmeister

University of Innsbruck - Department of Economics ( email )

Universitaetsstrasse 15
Innsbruck, 6020
Austria

HOME PAGE: http://www.holzmeister.biz

Michael Razen (Contact Author)

University of Innsbruck ( email )

Innsbruck
Austria

Matthias Stefan

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, 6020
Austria

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