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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. (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

Official Date:

October 2007

Dates:

Date	Event
October 2007	Published

Volume:

Vol.2

Number:

No.5

Number of Pages:

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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