How Risk Simulations Improve Long-Term Investment Decisions
Year: 2016
Type: preprint
Abstract: Risk simulations, which dynamically demonstrate investors the possible consequences of their investment decisions, were shown to play an integral part in comprehending the riskreturn trade-off and improving investment decision making. Up to now, studies have taken a static, short-term perspective focusing on just the initial investment decision. We analyze the benefits of risk simulations in a long-term experiment in which investors experience intermediate investment success and can adjust their investment strategy along the way. We find results underscoring the positive effects of risk simulations on investors’ understanding of the risk-return trade-off. Also, investors who do not use simulations need multiple investment periods until they show stable average risk taking behavior. JEL Classification: D81; G11
Source: SSRN Electronic Journal
Institution: Stony Brook University
Language: English
Subfield: General Decision Sciences
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3124902988