Don’t fear risk, learn about it: how familiarity reduces perceived risk

ABSTRACT

This article suggests that learning about basic concepts concerning the risk and return of assets will reduce perceived risk. We show experimentally that people who learn about these basic concepts are willing to allocate more money to risky assets and consider the asset’s return relative to its risk.

KEYWORDS:

• Risk
• financial literacy
• familiarity

JEL CLASSIFICATION:

• C09
• D08

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ There is no difference between the average allocation of the before group in problem 2 and problem 3 (two-tailed Wilcoxon signed ranks test: Z = 0.07; p = 0.95).

² There is no difference between the average allocation of the after group in problem 2 and problem 3 (two-tailed Wilcoxon signed ranks test: Z = 0.17; p = 0.87).

³ There were three students who did not answer this question.