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Financial Competence, Risk Presentation and Retirement Portfolio Preferences

Author

Listed:
  • Hazel Bateman

    (Centre for Pensions and Superannuation and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

  • Christine Eckert

    (Centre for the Study of Choice, University of Technology Sydney)

  • John Geweke

    (Centre for the Study of Choice, University of Technology Sydney)

  • Jordan Louviere

    (Centre for the Study of Choice, University of Technology Sydney)

  • Stephen Satchell

    (Trinity College, University of Cambridge and University of Sydney)

  • Susan Thorp

    (Centre for the Study of Choice, University of Technology Sydney)

Abstract

Financial regulators are weighing up the effectiveness of different templates for communicating investment risk to retirement savers since welfare depends on comprehension of risk information. We compare nine standard risk presentations using a discrete choice experiment where subjects choose between three retirement accounts. Switching between graphical or textual presentations, or between formats that emphasize benchmarks rather than return ranges or values at risk, affects predicted choices more than large changes in underlying risk. Innumerate individuals are more susceptible to presentation, and those with weak basic financial literacy are insensitive to increasing risk levels, regardless of presentation. Presentation effects are moderated but not eliminated as financial literacy improves.

Suggested Citation

  • Hazel Bateman & Christine Eckert & John Geweke & Jordan Louviere & Stephen Satchell & Susan Thorp, 2011. "Financial Competence, Risk Presentation and Retirement Portfolio Preferences," Working Papers 201106, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
    • Handle: RePEc:asb:wpaper:201106
    as

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    File URL: http://www.cepar.edu.au/media/62139/financial_competence_risk_presentation_and_retirement_portfolio_preferences__september_2011.pdf
    File Function: First version, 2011
    Download Restriction: no
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    More about this item

    Keywords

    : Discrete choice; risk preference; disclosure; Financial literacy;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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