ABSTRACT
We conduct an online experiment with 96 participants to examine the effect of separation of time horizons on investment decisions. We find that when asked to invest in short and long-time horizons separately rather than simultaneously, participants tend to invest more in risky assets, especially for the long-time horizon. They also tend to revise their decisions less after obtaining feedback on their projected, suggesting that they are more satisfied with their initial decision. The findings offer financial advisors practical suggestions to help clients to improve their investment decisions.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 We follow the setup of Kaufmann and Weber (Citation2013) who used past returns of the MSCI USA, but we modify their fixed interest rate to make it more realistic to current market conditions.
2 The question was taken from Rieger, Wang, and Hens (Citation2014): ‘How much should X at least be so that you would participate in a lottery, in which you have a 50% chance of losing €100 and a 50% chance of winning € X.’ The higher the amount of money X, the more loss averse.
3 The difference in ‘learning’ from the additional information can be explained like that: the treatment group had already made an optimal decision, so no learning occurred, while the control group invested too little into stocks and thus learned to adjust it upwards.