Contributions published at Experimental Finance (Stefan Zeisberger)

Investor behavior was shown to be considerably different when the risk-return tradeoff is presented by experience sampling as opposed to a descriptive communication. We analyze the persistency of this difference in a setting in which investors are faced with multiple decisions over time and are consequently able to adjust the risk level they initially chose. For this we use an experimental setting with repeated investment decisions over multiple trading days, and we also test a new form of risk simulation in which wealth paths over time are presented rather than just final outcomes. After investors’ initial decisions, for which we confirm previous findings, we do not find persistent differences of simulation-based learning on investors’ risk-taking behavior. With regards to trading volume, only a simulation in which investors see wealth paths and not only final outcomes leads to lower trading frequency soon after the initial asset allocation.

We demonstrate that investor satisfaction and investment behavior are influenced substantially by the price path by which the final investor return is achieved. In a series of experiments, we analyze various different price paths. Investors are most satisfied if their assets first fall in value and then recover, and they are least satisfied with the opposite pattern, independent of whether the final return is positive or negative. Price paths systematically influence risk preferences, return beliefs, and ultimately trading decisions. Our results enable a much more holistic perspective on a wide range of topics in finance, such as the disposition effect, risk-taking behavior after previous gains and losses, and behavioral asset pricing.