Change search
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf
Interest to Reinvest: Individuals’ use of numerical information for investment decisions
Stockholm University, Faculty of Social Sciences, Department of Psychology, Cognitive psychology. (Risk Analysis, Social and Decision Research Unit, Department of Psychology)ORCID iD: 0000-0003-2675-6044
2018 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The general aim of this thesis is to contribute to the understanding of how numerical information, such as asset values and interest rates, influences inexperienced investors in their investment decisions. In relation to this, I have investigated the participants’ own understanding of what information they rely on for their own decisions. I have also investigated how their willingness to wait for greater rewards is related to their investment decisions. Importantly, I have distinguished between average behavior (group behavior) and individual behavior in an attempt to better describe how different information is important for different individual investors.

On the group level the only reliable predictor of investment size was whether there was a gain or a loss during the period before the investment. However, how large the gain or loss was had no, or very limited, influence on investment size. When looking at each investor’s individual decisions, it was revealed that a substantial number of participants actually did rely on information other than only the gain/loss information, for example, the interest rates of forecasted developments of the different investment prospects. Furthermore, a substantial number of participants relied heavily on one of the cues; at least 50% of their investments were explained by the cue relied upon.

Interestingly, very few participants’ investments were influenced by their own judgments of future asset outcomes. Furthermore, the participants’ willingness to invest in funds with guaranteed gains was used as a proxy for time preference (willingness to wait for greater rewards instead of accepting lesser rewards in the present). Time preference was relevant for investments but it did not relate to judged asset outcomes. This indicates that people may be more influenced by their future-oriented preferences rather than by their future-oriented beliefs (judgments).

To conclude, these findings suggest that people use a preference-driven simplified strategy for investments and that these strategies differ substantially between individuals. This corroborates the idea about heuristic thinking, meaning that people simplify their decisions in a way that can deviate from normative value-maximizing behavior. For practical application, it is important to note the variety of strategies among individuals. This variety suggests that there is no “one size fits all” solution regarding instructions that can be given to inexperienced investors. The participants’ very limited insight into what information they relied upon is reason for researchers and advisors to understand the individuality in strategies in greater depth.

Place, publisher, year, edition, pages
Stockholm: Department of Psychology, Stockholm University , 2018. , p. 73
Keywords [en]
decision making, investments, interest rate, asset accumulation, information processing, gains, losses
National Category
Applied Psychology
Research subject
Psychology
Identifiers
URN: urn:nbn:se:su:diva-160297ISBN: 978-91-7797-382-9 (print)ISBN: 978-91-7797-383-6 (electronic)OAI: oai:DiVA.org:su-160297DiVA, id: diva2:1248856
Public defence
2018-11-02, David Magnussonsalen (U31), Frescati Hagväg 8, Stockholm, 13:00 (English)
Opponent
Supervisors
Note

At the time of the doctoral defense, the following paper was unpublished and had a status as follows: Paper 3: Manuscript.

Available from: 2018-10-10 Created: 2018-09-17 Last updated: 2019-01-21Bibliographically approved
List of papers
1. Growth and decline of assets: On biased judgments of asset accumulation and investment decisions
Open this publication in new window or tab >>Growth and decline of assets: On biased judgments of asset accumulation and investment decisions
2014 (English)In: Polish Psychological Bulletin, ISSN 0079-2993, E-ISSN 1641-7844, Vol. 45, no 1, p. 29-35Article in journal (Refereed) Published
Abstract [en]

Previous research showed that accumulations of capital following stationary interest rates are underestimated byhuman judges. Hyperbolic discounting was suggested as a descriptive and explanatory model for this phenomenon. First,we investigated judged accumulated capital after a period of annual growth and decline. The degree of underestimationincreased with accumulated growth and the results supported hyperbolic discounting as a descriptive model on the grouplevel. However, the hyperbolic model did not apply to the data for one third of the participants. Second, we investigatedhow investment decisions were related to capital accumulation before the investments and to judgments of the possibleoutcomes of the future investments. To our surprise, the participants’ judgments of expected future accumulated capitaldid not add predictive power to predictions based on whether there was growth or decline before the investment decision.Unfortunately this strategy leads to suboptimal investment decisions.

Keywords
investment decisions, discounting, uncertainty, growth, decline
National Category
Psychology
Research subject
Psychology
Identifiers
urn:nbn:se:su:diva-102579 (URN)10.2478/ppb-2014-0005 (DOI)
Available from: 2014-04-10 Created: 2014-04-10 Last updated: 2020-02-06Bibliographically approved
2. Different investors–different decisions: On individual use of gain, loss and interest rate information
Open this publication in new window or tab >>Different investors–different decisions: On individual use of gain, loss and interest rate information
2017 (English)In: Journal of Behavioral and Experimental Finance, ISSN 2214-6350, E-ISSN 2214-6369, Vol. 15, p. 59-65Article in journal (Refereed) Published
Abstract [en]

This study investigated how accumulating gains and losses, described as annual interest rates, influenced investment behavior. Investments after gains were on average greater than after losses regardless of the gain and loss interest rates. However, greater variance of interest rates gave some weight to that variable for gains but not for losses. We also analyzed the influence from different information cues on each participant’s investments. This revealed that interest rates influenced participants very differently, some invested more with increasing gains, or with increasing losses, while others invested less. This finding explained why interest rate was a weak predictor on the group level. Furthermore, our individual analyses showed an increased sensitivity to interest rates and judged future asset accumulations when the interest rate variance was greater. Finally, subjective reports of the importance of different cues for the participants’ own investments showed only some understanding of the cues influence on the investments.

Keywords
information processing, asset judgments, investments, accumulating gain, accumulating loss, interest rate, decision making
National Category
Psychology Economics and Business
Research subject
Psychology
Identifiers
urn:nbn:se:su:diva-150668 (URN)10.1016/j.jbef.2017.07.001 (DOI)000417638900007 ()
Note

This study was supported by funding from the Department of Psychology, Stockholm University and the Swedish Research Council. The author wants to thank Ola Svenson for valuable comments on earlier versions of the paper.

Available from: 2018-01-02 Created: 2018-01-02 Last updated: 2020-02-06Bibliographically approved
3. Nominal or proportional investments: Investment strategies, judgments of asset accumulations and time preference
Open this publication in new window or tab >>Nominal or proportional investments: Investment strategies, judgments of asset accumulations and time preference
(English)Manuscript (preprint) (Other academic)
Abstract [en]

According to Prospect theory, we judge and decide in relation to a reference point. Furthermore, it has been found that we perceive amounts differently depending on if people are asked about percentages or actual amounts of currency. Therefore, in this study, the effects of response format (amount of SEK or percentage of assets) on long term investment decisions were investigated. I also investigated the relation between investments and subjective judgments of asset accumulations, as well as time preference (the willingness to wait for greater rewards). Average investments were greater followings gains compared to losses, but there was no statistically significant effect of response format. The gain/loss factor was the best predictor of average investments, independent of gain/loss size. Judgments of accumulated assets were weakly related to investments and time preference, but time preference was closely related to investments. I also wanted to know how participants used the information in the problems. Therefore, how important different kinds of information were for each individual participant’s investments was analyzed. This revealed that that it was more common in the currency condition, compared to the percentage condition, to rely heavily on forecasted future interest rates, but also to ignore this information completely. In conclusion, information processing is very diverse and how people are asked to invest can change what information they focus on or ignore.

Keywords
Investments, response format, interest rates, accumulation, assets
National Category
Applied Psychology
Research subject
Psychology
Identifiers
urn:nbn:se:su:diva-160296 (URN)
Available from: 2018-09-17 Created: 2018-09-17 Last updated: 2020-02-06Bibliographically approved

Open Access in DiVA

Interest to Reinvest(941 kB)105 downloads
File information
File name FULLTEXT01.pdfFile size 941 kBChecksum SHA-512
1f57969361dff78733e6fb92225bd0252b5470f6b424ef4fd7ce09741dc9cc649fe4e50ffcc249cb76552a423cd2ad78481237a1b6369a3711418bdc2a8490b2
Type fulltextMimetype application/pdf

Search in DiVA

By author/editor
Gonzalez, Nichel
By organisation
Cognitive psychology
Applied Psychology

Search outside of DiVA

GoogleGoogle Scholar
Total: 105 downloads
The number of downloads is the sum of all downloads of full texts. It may include eg previous versions that are now no longer available

isbn
urn-nbn

Altmetric score

isbn
urn-nbn
Total: 842 hits
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf