Improving Investment Decisions with Simulated Experience* | Zendy

Meike Bradbury | Zendy; Thorsten Hens | Zendy; Stefan Zeisberger | Zendy

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Improving Investment Decisions with Simulated Experience*

Author(s) -

Meike Bradbury,

Thorsten Hens,

Stefan Zeisberger

Publication year - 2014

Publication title -

european finance review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1573-692X

pISSN - 1382-6662

DOI - 10.1093/rof/rfu021

Subject(s) - investment decisions , return on investment , investment (military) , financial risk , financial services , experience sampling method , finance , actuarial science , business , psychology , economics , microeconomics , behavioral economics , social psychology , politics , political science , law , production (economics)

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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