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Robust, domain specific effects of prior context in risk preferences for pension choice

Bird, S; Harris, AJL; (2018) Robust, domain specific effects of prior context in risk preferences for pension choice. Journal of Behavioral Decision Making , 31 (5) pp. 605-618. 10.1002/bdm.2077. Green open access

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Abstract

Evidence that context changes measured risk preferences raises concerns about the practice of measuring financial risk attitude in one context to guide investment choice. We found that participants who first made choices between pairs of high (low) risk pension funds subsequently preferred higher (lower) risk funds when offered a choice from a wider range of funds. This effect was also observed when the riskiness of the initial pension funds was manipulated within-subjects. Effects were not influenced by order, or attenuated by a bias warning. Tests across the domains of recreational and financial risk found that context effects are domain specific and that they influence both choices and judgments. Our results are consistent with theories of relative judgment. However, we also observed some evidence of sensitivity to absolute values. From an applied perspective, understanding such contextual sensitivity is important for recognising the limitations of risk profiling tools as part of a regulated financial advice process.

Type: Article
Title: Robust, domain specific effects of prior context in risk preferences for pension choice
Open access status: An open access version is available from UCL Discovery
DOI: 10.1002/bdm.2077
Publisher version: https://doi.org/10.1002/bdm.2077
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: risk attitude; domain specific risk; decision by sampling; prospect relativity; pensions
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences > Div of Psychology and Lang Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences > Div of Psychology and Lang Sciences > Experimental Psychology
URI: https://discovery.ucl.ac.uk/id/eprint/10040796
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