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

Marco Monti (), Riccardo Boero, Nathan Berg, Gerd Gigerenzer () and Laura Martignon ()

Mind & Society: Cognitive Studies in Economics and Social Sciences, 2012, vol. 11, issue 2, 203-233

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

Keywords: Behavioral finance; Investment decision; Portfolio composition; Non-compensatory heuristic; Recognition heuristic; Ecological rationality (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11299-012-0109-x

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