Can Psychological Aggregation Manipulations Affect Portfolio Risk-Taking? Evidence from a Framed Field Experiment

Consistent with myopic loss aversion, previous laboratory experiments have found that subjects are more willing to invest in risky assets if they are given less frequent feedback about their returns, are shown their aggregated portfolio-level (rather than asset-by-asset) returns, or are shown long-horizon (rather than one-year) historical asset class return distributions. In this paper, we find that these manipulations do not significantly increase portfolio risk-taking when subjects are recruited from a broad swath of the population and have hundreds of dollars at stake which must be invested in real mutual funds over a one-year horizon. We do find that relative to when no historical return information is shown, subjects invest more in equities when they see either oneyear or long-horizon historical return distributions, suggesting that many individual investors are unaware of how large the historical equity Sharpe ratio is. This publication was made possible by generous grants from the FINRA Investor Education Foundation and the Social Security Administration through grant #10-P-98363-1-05 to the National Bureau of Economic Research as part of the SSA Retirement Research Consortium. We are grateful for the research assistance of Eric Zwick, Ben Hebert, and Brendan Price. We have benefited from the comments of Shlomo Benartzi, Arie Kapteyn, Jan Potters, Richard Thaler, and seminar audiences at Wharton, Yale, and the Annual Conference in Behavioral Economics. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, the NBER, or FINRA. The FINRA Investor Education Foundation, formerly known as the NASD Investor Education Foundation, supports innovative research and educational projects that give investors the tools and information they need to better understand the markets and the basic principles of saving and investing. For details about grant programs and other new initiatives of the Foundation, visit www.finrafoundation.org.