How to Alleviate Correlation Neglect in Investment Decisions

• 成果类型: Article
• 署名作者: Laudenbach, Christine; Ungeheuer, Michael; Weber, Martin
• 署名单位: Aalto University; University of Mannheim; Centre for Economic Policy Research - UK
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4535
• 发表日期: 2023
• 页码: 3400-3414
• 关键词: INVESTMENT DECISIONS; diversification; correlation neglect; risk taking; FinTech

摘要

We experimentally study how presentation formats for return distributions affect investors' diversification choices. We find that sampling returns alleviates correlation neglect and constitutes an effective way to improve financial decisions. When participants get a description of the probabilities for outcomes of the joint return distribution, we confirm the findings of others that investors neglect the correlation between assets in their diversification choices. However, when participants sample from the joint distribution, they change their allocation between two assets in response to a change in their correlation in the predicted direction. The results are robust across two experiments that have participants with varying experience (students versus private investors).