Improving Investment Decisions with Simulated Experience

Bradbury, Meike and Hens, Thorsten and Zeisberger, Stefan

Abstract

We apply a new and innovative approach to communicating risks associated with financial
products that should support investors in making better investment decisions. In our experiments,
participants are able to gain ”simulated experience” by random sampling of a previously described return
distribution. We find that simulated experience considerably improves participants’ understanding of the
underlying risk-return profile and prompts them to reconsider their investment decisions and to choose
riskier financial products without regretting their higher risk-taking behavior afterwards. This method
of experienced-based learning has high potential for being integrated into real-world applications and
services.

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Zora

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