IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Do Risk Disclosures Affect Investment Choice?

Listed author(s):
  • Angela A. Hung
  • Aileen Heinberg
  • Joanne K. Yoong

The aim of this study was to understand the potential effects of different information disclosures regarding risk on retirement investing behavior. The authors developed and tested two modifications to the section on investment performance on the prototype DOL Model Comparative Chart, providing additional risk and return information in a clear graphical manner. One modification provided summary risk ratings, while the other provided a visual representation of actual returns series over 10 years. They conducted an experiment using a nationally representative internet survey. All participants were asked to perform the same hypothetical task allocating retirement investments over a range of six possible typical investment fund options. Treatment groups were randomly allocated to receive different representations of the same risk/return information. They also investigated order effects by randomizing the presentation order of the six investment options. Alternative representations of the risk/return information had a statistically significant effect on allocation decisions, but the practical significance is difficult to determine: although different treatment groups chose different allocations across the six investment options, the risk/return characteristics of the resulting portfolios were very similar. Perhaps surprisingly, the effects of the alternative disclosure forms do not seem to vary across individuals with different levels of financial literacy, or across individuals with different levels of risk aversion. Order effects were stronger than the disclosure form effects, but were independent of the risk characteristics of the investment options: the first and last investment options presented tend to receive larger allocations. Furthermore, the order effects do not appear to be offset by providing additional risk/return information. Their results are consistent with findings that summary disclosure forms are popular with consumers and help them feel more confident about their decisions; our results go further in showing that alternative forms do lead to different choices, but that those different choices may not result in practically significant differences in investment outcomes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by RAND Corporation in its series Working Papers with number 788.

in new window

Length: 36 pages
Date of creation: Sep 2010
Handle: RePEc:ran:wpaper:788
Contact details of provider: Postal:
1776 Main Street, P.O. Box 2138, Santa Monica, California 90407-2138

Phone: (310) 393-0411, x7359
Fax: 310-393-4818
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ran:wpaper:788. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benson Wong)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.