Household financial decision making

Abstract

Households are nowadays required to make financial decisions of increasing complexity in an increasing number of domains. This thesis explores psychological mechanisms, behavior change interventions, and potential inhibitory factors underlying wise household financial decisions in the domains of gambling advertising and mutual fund investing. In-depth investigations of these two domains were chosen to balance the depth of topic coverage versus the wide breadth of modern financial decision making. UK soccer gambling advertising was investigated via two observational studies and a range of online experiments. The experiments found that soccer fans struggle to form coherent expectations for the complex bets featuring in UK soccer gambling advertising. Mutual fund investors have to balance a number of cues in their investment choices. Normatively, mutual fund investors should minimize fees. However, a number of investors choose to maximize past returns instead. Three chapters investigate how mutual fund fees and financial percentage returns are psychologically processed, in order to uncover beneficial behavior change interventions. Many participants processed percentages additively, rather than follow the correct multiplicative strategy. Both percentages and corresponding “small” currency amounts were associated with systematic biases. Participant responses were closest to the normative strategy when either past returns were framed as a “small” currency amount, or when fees were framed as a 10 year currency amount. “Some people invest based on past performance, but funds with low fees have the highest future results” was the most effective disclaimer at nudging fee-sensitivity against the real world status quo, “Past performance does not predict future results.”