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Framing effects and risk perception: testing graphical representations of risk for the KIID


Stössel, Remo; Meier, Anna (2015). Framing effects and risk perception: testing graphical representations of risk for the KIID. SSRN 2606615, University of Zurich.

Abstract

In this paper we analyze which graphical representation of risk is most effective in supporting investors to assess the risk and return characteristics of a fund. Moreover, we test on which criteria the investors base their risk taking behavior. To this end we compare return bar charts and price line charts, combined with some additional information such as a risk scale or a gain and loss range.
We find that the risk communication with bar charts performs relatively well, except with regard to communicating the possibility of losses. Furthermore, we find that people generally underestimate risks and overestimate return. We additionally find that risk perception has the strongest influence on risk taking behavior, and in particular that a higher risk perception leads to less risk taking.

Abstract

In this paper we analyze which graphical representation of risk is most effective in supporting investors to assess the risk and return characteristics of a fund. Moreover, we test on which criteria the investors base their risk taking behavior. To this end we compare return bar charts and price line charts, combined with some additional information such as a risk scale or a gain and loss range.
We find that the risk communication with bar charts performs relatively well, except with regard to communicating the possibility of losses. Furthermore, we find that people generally underestimate risks and overestimate return. We additionally find that risk perception has the strongest influence on risk taking behavior, and in particular that a higher risk perception leads to less risk taking.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:15 May 2015
Deposited On:26 Nov 2015 11:07
Last Modified:08 Dec 2017 15:02
Series Name:SSRN
Free access at:Official URL. An embargo period may apply.
Official URL:http://ssrn.com/abstract=2606615
Other Identification Number:merlin-id:12066

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