Communicating Asset Risk: How the format of historic volatility information affects risk perception and investment decisions

An experiment examined the effect that the type and presentation format of information about investment options have on expectations held by investors about asset risk, returns, and volatility. Some respondents were provided with the names of investment options in addition to historical (1987-97) volatility data, and some were not. Historical volatility was presented either as a bar graph of returns per year or as a continuous density distribution of returns over the 10-year period. Risk and volatility perceptions both varied significantly as a function of type and format of information, but in different ways. Biases in risk perception, but not in volatility forecasts, affected portfolio decisions.

The Impact of Institutions on the Decision How to Decide

The human mind is not a general problem solving machine. Instead of deliberately, consciously and serially processing the available information, men can rely on routines, rules, roles or affect for the purpose. They can bring in technology, experts or groups. For all of these reasons, men have a plurality of problem solving modes at their disposition. Often, the meta-choice of problem solving mode matters for behavioural output. Some performance standards are only to be met if a certain problem solving mode is used, like a well-established skill. Other requirements are easier to fulfil with some problem solving modes. This explains why institutions frequently impact on the choice of problem solving mode. To show how institutions are able to do that, a model of problem solving modes is developed. It allows to systematise the access points for institutional intervention.Decision Making, Problem Solving, Institutions

Testing Invariance in Risk Taking: A Comparison Between Anglophone and Francophone Groups

This article investigates the measurement invariance of 3 related constructs across 2 groups sampled from Anglophone and Francophone adult populations. Multiple-group confirmatory factor analyses explored the factor structures of the Domain-Specific Risk-Taking (DOSPERT) Scale (Weber, Blais, & Betz, 2002), the Risk-Taking scale of the Jackson Personality Inventory (Jackson, 1994), and the Sensation-Seeking Scale (Zuckerman, 1980; 1994) both within and between the 2 groups of 172 Anglophone and 187 Francophone participants. The psychometric properties of the original and translated instruments are discussed, as is the meaningfulness of using these scales in these populations. Le présent article se penche sur l’invariance des mesures de trois construits corrélés pour deux groupes échantillonnés issus de populations adultes anglophones et francophones. Des analyses factorielles confirmatoires de groupes multiples ont été conduites sur les structures factorielles de l’échelle Domain-Specific Risk-Taking (DOSPERT) (Weber, Blais, et Betz, 2002), de l’échelle de prise de risque de l’inventaire de personnalité (Personality Inventory) de Jackson (Jackson, 1994), et de l’échelle de recherche de sensations (Sensation-Seeking Scale) de Zuckerman (Zuckerman, 1980; 1994) aussi bien à l’intérieur de deux groupes de 172 participants anglophones et de 187 participants francophones qu’entre ces deux mêmes groupes. Nous discutons des propriétés psychométriques des instruments originaux et traduits, de même que de la pertinence d’utiliser ces échelles au sein des populations en question.measurement invariance, psychometric scale, risk taking, sensation seeking, échelle psychométrique, invariance des mesures, prise de risques, recherche de sensations

Who’s Afraid of a Poor Old Age?: Risk Perception in Risk Management Decisions

Retirement planning and voluntary as well as mandated contributions to pension plans require a series of decisions under uncertainty. Those range from initial decisions about the magnitude of contributions and allocation across different investment options and choice of option providers, to periodic reviews of these decisions in light of possible changes in goals or circumstances. Behavioral decision research provides a series of lessons about how such decisions are made and thus for the optimal design of pension plans. This chapter will addresses the role of affect in perceptions of risk and subsequent decisions to take actions that reduce or manage perceived risks. I review evidence showing that individual and group differences in risk perception, much more than differences in risk attitude, are responsible for differences in the choices people make. If people fail to be alarmed about a risk or hazard, they fail to take precautions. Risk perception, on the other hand, is predictable from general characteristics of the hazard and from prior, personal history. The risks associated with inadequate retirement planning have all the characteristics associated with hazards that do not evoke strong visceral reactions

Investment decisions and time horizon: Risk perception and risk behavior in repeated gambles

To investigate the effect of time horizon on investment behavior, this paper reports the results of an experiment in which business graduate students provided certainty equivalents and judged various dimensions of the outcome distribution of simple gambles that were played either once or repeatedly for 5 or 50 times. Systematic mistakes in the ex-ante estimations of the distributions of outcomes after (independent) repeated plays were observed. Despite correctly realizing that outcome standard deviation increases with the number of plays, respondents showed evidence of Samuelson's (1963) fallacy of large numbers. Perceived risk judgments showed only low correlations with standard deviation estimates, but were instead related to the anticipated probability of a loss (which was overestimated), mean excess loss, and the coe±cient of variation. Implications for future research and practical implications for financial advisors are discussed

Communicating asset risk : how the format of historic volatility information affects risk perception and investment decisions

An experiment examined the effect that the type and presentation format of information about investment options have on expectations held by investors about asset risk, returns, and volatility. Some respondents were provided with the names of investment options in addition to historical (1987-97) volatility data, and some were not. Historical volatility was presented either as a bar graph of returns per year or as a continuous density distribution of returns over the 10-year period. Risk and volatility perceptions both varied significantly as a function of type and format of information, but in different ways. Biases in risk perception, but not in volatility forecasts, affected portfolio decisions

Energy-Efficient-Homes : Designing energy-efficient architecture in an urban context

Zugl. erschienen in: Energy Efficient Housing for Iran : Pilot Buildings in Hashtgerd New Town. - Berlin: Universitätsverlag der TU Berlin, 2013 (Young Cities Research Paper Series ; 4) http://nbn-resolving.de/urn:nbn:de:kobv:83-opus-39369 Zugleich gedruckt veröffentlicht im Universitätsverlag der TU Berlin unter der ISBN 978-3-7983-2565-4.The concept for the Energy- Efficient- Homes is part of a holistic approach to develop urban structures with energy-saving features, high quality, low carbon emissions and affordable costs for middle and lower income classes. The process of developing this concept includes a design for energy-efficient housing in an Iranian new town project with potential for mitigation in the region and climate adaptation. The method of developing a spatial concept according to the energy-relevant aspects of urban and architectural morphology and integrating it into the socio-cultural context of the “Shahre Javan Community”, the pilot settlement in Hashtgerd New Town, is designed to provide an economic strategy for a practical basic energy standard that has been adapted to the region. The courtyard housing scheme of the Energy- Efficient- Homes shows a new development derived from the vernacular approach of spatial hierarchy considering the major morphological aspects of orientation and compactness. With the use of new technologies for energy efficiency, this basic standard of spatial organisation and design can also be upgraded to meet higher standards. The chosen research methodology for the Energy-Efficient-Homes is performed for a residential pilot project in the “Shahre Javan Community”. To ensure the appropriateness to the pilot project, the methods of research are integrated in a planning process. The method suitable for combining scientific and planning results is the research-by-design process. In a systematic work process, the findings of a general approach and specific design allow for the evaluation and definition of further steps. By applying this scenario-specific methodology for architectural and urban design supposition, that have been obtained from a general approach, to real planning situations, the assessment can be performed on different scales. Finally, the results gathered in the design process are used to revise the formulation of the initial approach. The findings of the design and research process for the Energy-Efficient-Homes are transferred to a final design proposal for an urban unit in the pilot area. By transforming the design and adaptation measures from the typological approach into a specific design scenario, the challenges for the practical application of such a general approach can be weighted and evaluated. Furthermore, the realistic scenario serves as a basis for cost estimations, energy simulations and constructional detailing. Architectural models and drawings are used to define a standard for materials and energy objectives. The definition of adaptive design measures out of the research and planning process and the identification of urban, architectural and technical elements for developing the Energy-Efficient-Homes led to a distinction between a Basic Principle and possible Upgrades. This categorisation helps to define different standards as well as a scientific basis for the planning process of energy-efficient housing in the region. The Basic Principle is the design strategy for energy-efficient architecture and urban design from a spatial approach without any additional technical demands. It contains all planning and design measures to increase energy efficiency through the spatial configuration, such as building orientation and compactness, site suitability and cultural context. It can be seen as a low-cost approach and defines a minimum standard for energy efficiency in the Middle East. The upgrading measures include possibilities to raise the standard of the basic principle. Supplementary technologies can be integrated into the spatial approach. Possible Upgrades include simple mechanical elements for light and energy guidance, such as sun-shutters, furthermore the use of the ground temperature by means of earth tubes and a concept of heat exchangers, and finally the application of higher technological materials, such as photovoltaic fabrics to generate supplementary energy. The measures are characterized by a planning dimension as well as a technological and economic dimension. The choice of upgrading measure is dependent on the economic and technological context. The upgrade defines the standard for maximum energy efficiency in the region

The Financial Cost of Sadness

This paper hypothesizes a phenomenon—myopic misery—in which sadness creates a myopic focus on obtaining money now versus later, increasing intertemporal discount rates and thereby producing substantial financial costs. Experiments 1-3 randomly assigned participants to a sad- or neutral-mood condition, and then offered intertemporal choices. Disgust served as a comparison condition in Experiments 1-2. Results revealed that sadness significantly increased impatience: Relative to median neutral-mood participants, median sad-mood participants accepted 13% to 34% less money today to avoid waiting three months for payment. Impatient thoughts mediated the effects. Disgusted participants were not more impatient than neutral participants, implying that the financial effects do not arise from all negative emotions. The paper concludes that myopic misery is a robust and potentially harmful phenomenon