Featured Research

from universities, journals, and other organizations

How Much Risk Can You Handle? Making Better Investment Decisions

Date:
August 26, 2008
Source:
University of Chicago Press Journals
Summary:
Many Americans make investment decisions with their retirement funds. But they don't always make informed judgments. A new study introduces a new tool that investors can use to choose investments based on their financial goals and risk attitudes.

Many Americans make investment decisions with their retirement funds. But they don't always make informed judgments. A new study in the Journal of Consumer Research introduces a new tool that investors can use to choose investments based on their financial goals and risk attitudes.

Authors Daniel G. Goldstein (London Business School), Eric J. Johnson (Columbia University), and William F. Sharpe (Stanford University) developed a tool, which they call the Distribution Builder. With brief training, people can use the Distribution Builder to better understand their investment goals and trade-offs.

"We think that the Distribution Builder can function like a flight simulator, allowing investors to explore the outcomes of their decisions with only virtual outcomes," write the authors.

The Distribution Builder is an online tool that estimates the level of risk a user considers unacceptable in his or her investments by using a probability distribution. Since many employees make retirement investment decisions without understanding the complex picture of their own risk preferences, the Distribution Builder is a novel way for people to uncover their preexisting preferences. And, according to the researchers, it can also help people construct better preferences.

The researchers claim that by using the tool, investors can become more actively involved in the process of deciding where and how much to invest. They also believe investment management companies could use the tool to better serve their investors.

The Distribution Builder may have applications that reach beyond retirement investments. "Beyond financial services, the basic DB framework could be used to study other consumer choices in which there is a risk-reward tradeoff, including waiting times at health clinics (or on customer support lines), delivery times of packages, and overage charges for mobile-phone plans," they conclude.


Story Source:

The above story is based on materials provided by University of Chicago Press Journals. Note: Materials may be edited for content and length.


Journal Reference:

  1. Daniel G. Goldstein, Eric J. Johnson, and William F. Sharpe. Choosing Outcomes versus Choosing Products: Consumer‐Focused Retirement Investment Advice. Journal of Consumer Research, 2008; DOI: 10.1086/589562

Cite This Page:

University of Chicago Press Journals. "How Much Risk Can You Handle? Making Better Investment Decisions." ScienceDaily. ScienceDaily, 26 August 2008. <www.sciencedaily.com/releases/2008/08/080822160349.htm>.
University of Chicago Press Journals. (2008, August 26). How Much Risk Can You Handle? Making Better Investment Decisions. ScienceDaily. Retrieved September 2, 2014 from www.sciencedaily.com/releases/2008/08/080822160349.htm
University of Chicago Press Journals. "How Much Risk Can You Handle? Making Better Investment Decisions." ScienceDaily. www.sciencedaily.com/releases/2008/08/080822160349.htm (accessed September 2, 2014).

Share This




More Science & Society News

Tuesday, September 2, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Get A Mortgage, Receive A Cat — Only In Russia

Get A Mortgage, Receive A Cat — Only In Russia

Newsy (Sep. 2, 2014) The incentive is in keeping with a Russian superstition that it's good luck for a cat to be the first to cross the threshold of a new home. Video provided by Newsy
Powered by NewsLook.com
Raw: Thousands of Fish Dead in Mexico Lake

Raw: Thousands of Fish Dead in Mexico Lake

AP (Sep. 2, 2014) Over 53 tons of rotting fish have been removed from Lake Cajititlan in western Jalisco state. Authorities say that the thousands of fish did not die of natural causes. (Sep. 2) Video provided by AP
Powered by NewsLook.com
U.N. Says Ebola Travel Restrictions Will Cause Food Shortage

U.N. Says Ebola Travel Restrictions Will Cause Food Shortage

Newsy (Sep. 2, 2014) The U.N. says the problem is two-fold — quarantine zones and travel restrictions are limiting the movement of both people and food. Video provided by Newsy
Powered by NewsLook.com
Halliburton Reaches $1B Gulf Spill Settlement

Halliburton Reaches $1B Gulf Spill Settlement

AP (Sep. 2, 2014) Halliburton's agreement to pay more than $1 billion to settle numerous claims involving the 2010 BP oil spill could be a way to diminish years of costly litigation. A federal judge still has to approve the settlement. (Sept. 2) Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins