How to Alleviate Correlation Neglect in Investment Decisions

We experimentally study how presentation formats for return distributions affect investors’ diversification choices. find that sampling returns alleviates correlation neglect and constitutes an effective way to improve financial decisions. When participants get a description of the probabilities outcomes joint distribution, we confirm findings others investors between assets in their However, when sample from they change allocation two response predicted direction. The results are robust across experiments have with varying experience (students versus private investors). This paper was accepted by Manel Baucells, behavioral economics decision analysis. Funding: work supported Academy Finland [Decision Item 322357] Deutsche Forschungsgemeinschaft [Grant We993/15-1]. Supplemental Material: online appendix data available at https://doi.org/10.1287/mnsc.2022.4535 .