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Relativistic financial decisions: context effects on retirement saving and investment risk preferences

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Vlaev, Ivo, Chater, Nick and Stewart, Neil, 1974-. (2007) Relativistic financial decisions: context effects on retirement saving and investment risk preferences. Judgment and Decision Making, Vol.2 (No.5). pp. 292-311. ISSN 1930-2975

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Abstract

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.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory B Philosophy. Psychology. Religion > BF Psychology
Divisions:	Faculty of Science > Psychology
Library of Congress Subject Headings (LCSH):	Risk assessment, Risk-taking (Psychology), Retirement income
Journal or Publication Title:	Judgment and Decision Making
Publisher:	Society for Judgment and Decision Making
ISSN:	1930-2975
Date:	October 2007
Volume:	Vol.2
Number:	No.5
Number of Pages:	20
Page Range:	pp. 292-311
Status:	Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Leverhulme Trust (LT), Institute of Actuaries (Great Britain) (IoA), European Commission (EC), Human Frontiers Science Program (HFSP)
Grant number:	RTN-HPRN-CT-1999-00065 (EC)
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URI:	http://wrap.warwick.ac.uk/id/eprint/607