Affective labels and investment decision making: The effect of name on the subjective perception of mutual funds risk

It is known in the literature that affective reactions and subjective factors influence the evaluation of risk. The goal of our work is to assess to what extent recent regulation change in the description of risk, the Synthetic Risk Indicator (ISR) in the "Key Investor Information Document" (KIID) of mutual funds, is sensitive to affective reactions induced by the name of the fund ("name effect") and capable of taking into account the subjective dimension of risk perception when it is evaluated from a multidimensional standpoint. In our experiment we administered three fund prospectus corresponding to three different combinations of "Name-ISR", which define the conditions of our experimental design. During the data analyses, aggregating the respondents in a suitable manner, we identified the presence of the "name effect" and its influence on the perceived risk of the funds, a results that is robust to both different types of data (with or without completion of questionnaires by way of amultiple imputation), and to the way risk is measured (semantic differential or single direct question). When funds have the same name, risk perception is consistent with the respective ISR if measured using a direct question (in this case the numeric scalein the question favors the comparison with the ISR), but is not consistent if measured through a semantic differential. Results of this experiment suggest that participants' inferences are influenced by rationally irrelevant information and subjective information when choosing an investment. These reactions cannot be correctly synthesized in a single objective and general risk value.