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How do common investors behave? Information search and portfolio choice among bank customers and university students

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Author Info

  • Marco Monti

    ()

  • Riccardo Boero

    ()

  • Nathan Berg

    ()

  • Gerd Gigerenzer

    ()

  • Laura Martignon

    ()

Abstract

Bank customers are not financial experts, and yet they make high-stakes decisions that can substantively affect personal wealth. Sooner or later, every individual has to take relevant investment decisions. Using data collected from financial advisors, bank customers and university students in Italy, this paper aims to reveal new insights about the decision processes of average non-expert investors: their investment goals, the information sets they consider, and the factors that ultimately influence decisions about investment products. Using four portfolio choice tasks based on data collected directly from financial advisors and their clients, we find that most subjects used a limited set of information, ignoring factors that conventional economic models usually assume drive investor behavior. Furthermore, we suggest that non-compensatory decision-tree models, which make no trade-offs among investment features, are parsimonious descriptions of investor behavior useful for improving the organization of financial institutions and in policy contexts alike. Copyright Springer-Verlag 2012

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Bibliographic Info

Article provided by Fondazione Rosselli in its journal Mind & Society.

Volume (Year): 11 (2012)
Issue (Month): 2 (December)
Pages: 203-233

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Handle: RePEc:spr:minsoc:v:11:y:2012:i:2:p:203-233

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Web page: http://www.springer.com/economics/journal/11299
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Keywords: Behavioral finance; Investment decision; Portfolio composition; Non-compensatory heuristic; Recognition heuristic; Ecological rationality;

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  1. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, Spring.
  2. Berg, Nathan & Hoffrage, Ulrich, 2008. "Rational ignoring with unbounded cognitive capacity," Journal of Economic Psychology, Elsevier, vol. 29(6), pages 792-809, December.
  3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  4. John G. Lynch , Jr. & Dan Ariely, 2000. "Wine Online: Search Costs Affect Competition on Price, Quality, and Distribution," Marketing Science, INFORMS, vol. 19(1), pages 83-103, April.
  5. Carlo Alberto Magni, 2009. "Investment decisions, net present value and bounded rationality," Quantitative Finance, Taylor & Francis Journals, vol. 9(8), pages 967-979.
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