Does the Visual Display of Probability Change Hypothetical Stock Selection?
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Prospect theory assumes people are more averse to losses than to gains and indicates the way a question is framed makes a difference in the outcome. However, almost no research has been conducted on the framing effects of prospect theory survey questions, and very little qualitative data have been collected with regard to why people make the decisions they do. This research utilizes primary data collected from 200 residents within five census tracts in southwest Lubbock, Texas. Answers to hypothetical investment scenarios were analyzed to determine if responses change based on how a question is framed. Investment preferences change to the stock with the greatest probability of a gain when probability information is displayed visually. Most investors in this sample indicated the potential gain associated with the investment scenarios was their primary decision making rationale. Investors may be willing to take more financial risks when probability information is displayed visually and when the potential losses are relatively small.
This article is from Consumer Interest Annual 58 (2012): 13 pp. Posted with permission.