Relativistic financial decisions
We report a study of the effects the choice set on financial decision making related to retirement savings and risky investment. The participants were presented with either a full range of choice options or a limited subset of the feasible options. The choices of saving and risk are affected by the...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Cambridge University Press
2007-10-01
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| Series: | Judgment and Decision Making |
| Subjects: | |
| Online Access: | http://journal.sjdm.org/7809/jdm7809.pdf |
| _version_ | 1797766396950609920 |
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| author | Ivo Vlaev Nick Chater Neil Stewart |
| author_facet | Ivo Vlaev Nick Chater Neil Stewart |
| author_sort | Ivo Vlaev |
| collection | DOAJ |
| description | We report a study of the effects the choice set on financial decision making related to retirement savings and risky investment. The participants were presented with either a full range of choice options or a limited subset of the feasible options. The choices of saving and risk are affected by the position of each option in the range of presented options. This result demonstrated that the range of the options offered as possible saving rates and levels of investment risk influences decisions about saving and risk. The study was conducted on a sample of working people, and we controlled whether the participants can financially afford in their real life the decisions taken in the test. In addition, various measures of risk aversion did not account for the risk taken in each condition. Surprisingly, only the simplest and most direct risk preference measure was a significant predictor of the responses within a particular choice set context, although the actual choices were still very much influenced by the range. Thus, the results reported here suggest that financial judgments and choices are relative, which corroborates, in an important practical domain, previous related work with abstract gambles and hypothetical risky investments. |
| first_indexed | 2024-03-12T20:24:45Z |
| format | Article |
| id | doaj.art-bb6a8d0894604d75837a00af62588ef4 |
| institution | Directory Open Access Journal |
| issn | 1930-2975 |
| language | English |
| last_indexed | 2024-03-12T20:24:45Z |
| publishDate | 2007-10-01 |
| publisher | Cambridge University Press |
| record_format | Article |
| series | Judgment and Decision Making |
| spelling | doaj.art-bb6a8d0894604d75837a00af62588ef42023-08-02T00:37:42ZengCambridge University PressJudgment and Decision Making1930-29752007-10-012NA292311Relativistic financial decisionsIvo VlaevNick ChaterNeil StewartWe report a study of the effects the choice set on financial decision making related to retirement savings and risky investment. The participants were presented with either a full range of choice options or a limited subset of the feasible options. The choices of saving and risk are affected by the position of each option in the range of presented options. This result demonstrated that the range of the options offered as possible saving rates and levels of investment risk influences decisions about saving and risk. The study was conducted on a sample of working people, and we controlled whether the participants can financially afford in their real life the decisions taken in the test. In addition, various measures of risk aversion did not account for the risk taken in each condition. Surprisingly, only the simplest and most direct risk preference measure was a significant predictor of the responses within a particular choice set context, although the actual choices were still very much influenced by the range. Thus, the results reported here suggest that financial judgments and choices are relative, which corroborates, in an important practical domain, previous related work with abstract gambles and hypothetical risky investments.http://journal.sjdm.org/7809/jdm7809.pdfcontext effectsdecision makingjudgmentinvestment risksaving. |
| spellingShingle | Ivo Vlaev Nick Chater Neil Stewart Relativistic financial decisions Judgment and Decision Making context effects decision making judgment investment risk saving. |
| title | Relativistic financial decisions |
| title_full | Relativistic financial decisions |
| title_fullStr | Relativistic financial decisions |
| title_full_unstemmed | Relativistic financial decisions |
| title_short | Relativistic financial decisions |
| title_sort | relativistic financial decisions |
| topic | context effects decision making judgment investment risk saving. |
| url | http://journal.sjdm.org/7809/jdm7809.pdf |
| work_keys_str_mv | AT ivovlaev relativisticfinancialdecisions AT nickchater relativisticfinancialdecisions AT neilstewart relativisticfinancialdecisions |