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Improving Investment Decisions with Simulated Experience


Bradbury, Meike A S; Hens, Thorsten; Zeisberger, Stefan (2015). Improving Investment Decisions with Simulated Experience. Review of Finance, 19(3):1019-1052.

Abstract

We apply a new and innovative approach to communicating risks associated with financial products that should support investors in making better investment decisions. In our experiments, participants are able to gain "simulated experience" by random sampling of a previously described return distribution. We find that simulated experience considerably improves participants’ understanding of the underlying risk-return profile and prompts them to reconsider their investment decisions and to choose riskier financial products without regretting their higher risk-taking behavior afterwards. This method of experienced-based learning has high potential for being integrated into real-world applications and services.

Abstract

We apply a new and innovative approach to communicating risks associated with financial products that should support investors in making better investment decisions. In our experiments, participants are able to gain "simulated experience" by random sampling of a previously described return distribution. We find that simulated experience considerably improves participants’ understanding of the underlying risk-return profile and prompts them to reconsider their investment decisions and to choose riskier financial products without regretting their higher risk-taking behavior afterwards. This method of experienced-based learning has high potential for being integrated into real-world applications and services.

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5 citations in Web of Science®
7 citations in Scopus®
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12 downloads since deposited on 04 Mar 2015
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2015
Deposited On:04 Mar 2015 11:18
Last Modified:06 Jun 2016 00:00
Publisher:Oxford University Press
ISSN:1572-3097
Publisher DOI:https://doi.org/10.1093/rof/rfu021
Official URL:http://rof.oxfordjournals.org/content/early/2014/06/06/rof.rfu021.abstract
Other Identification Number:merlin-id:9444

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