Quotation Huber, Christoph, Huber, Jürgen. 2019. Scale matters: risk perception, return expectations, and investment propensity under different scalings. Experimental Economics. 22 76-100.


RIS


BibTeX

Abstract

With a novel experimental design we investigate whether risk perception, return expectations, and investment propensity are influenced by the scale of the vertical axis in charts. We explore this for two presentation formats, namely return charts and price charts, where we depict low- and high-volatility assets with distinct trends. We find that varying the scale strongly affects people’s risk perception, as a narrower scale of the vertical axis leads to significantly higher perceived riskiness of an asset even if the underlying volatility is the same. Furthermore, past returns predict future return expectations almost perfectly. In our setting perceived profitability was considered more important than perceived riskiness when making investment choices. Overall we show that adapting the scale of a chart makes it easier to recognize yearly return variations within a single security, but at the same time makes it harder to identify differences between dissimilar securities. This is something regulators should be aware of and take into account in the rules they set.

Tags

Press 'enter' for creating the tag

Publication's profile

Status of publication Published
Affiliation External
Type of publication Journal article
Journal Experimental Economics
Citation Index SSCI
WU-Journal-Rating new FIN-A, STRAT-A, VW-C, WH-A
Language English
Title Scale matters: risk perception, return expectations, and investment propensity under different scalings
Volume 22
Year 2019
Page from 76
Page to 100
Reviewed? Y
URL http://link.springer.com/article/10.1007/s10683-018-09598-4/fulltext.html
DOI http://dx.doi.org/10.1007/s10683-018-09598-4
Open Access Y
Open Access Link http://link.springer.com/article/10.1007/s10683-018-09598-4/fulltext.html

Associations

People
Huber, Christoph (Details)
External
Huber, Jürgen (University of Innsbruck, Austria)
Organization
Institute for Markets and Strategy IN (Details)
Google Scholar: Search