designing risk profile questions that help consumers to ... - Netspar

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designing risk profile questions that help consumers to ... - Netspar

DESIGNING RISK PROFILE

QUESTIONS THAT HELP

CONSUMERS TO BETTER

UNDERSTAND PENSION RISKS

Benedict Dellaert and Jordana Liberali


Good or Bad Decision?

How Can We know


Decision Analysis

What are the action choices?

What are the pros and cons of each possible

action?

What are the consequences of each choice?

What is the probability of each consequence?

What is the relative importance of each possibility?

What is the identification of the best course of

action?


Irrational Decisions

Drink and drive

Unprotected sex

Economic meltdown: Irrational or greed?

Not save money for retirement?

Deferral of gratification


Background: Three Aims

Normative (ideal not average)

What should people do?

How should people decide?

Descriptive

What do people do?

How do they decide?

Prescriptive

How can we help people achieve their ideal?

What is practical, as opposed to ideal?


Format of information matters


Fuzzy Trace theory

People form two kinds of mental representations:

Verbatim

Gist



Precise, detailed

Becomes inaccessible faster than gist



Fuzzy, incorporates meaning,

general, non-specific

Last longer


Fuzzy Trace theory

Because gist is more stable over time and more

meaningful to consumers, gist information is more

likely to be used to make a decision.

Offering bottom line information instead of an

overload of meaningless details should help

consumers to make better decisions


Goals

Investigate if firms could facilitate consumers’ decision

making by providing information organized in a way to

make the bottom line clearer, helping consumers to

extract the correct meaning from that information

Explore the kind of information that can best be

provided to consumers in risk profile questions to:

1. assist their pension risk attitude formation,

2. increase their understanding of pension risks, and

3. how these affect their satisfaction with their pension

portfolio type decision.


Pre-project studies:

(March 2011-March 2012)

Lab and Survey study are being conducted to lay out

the foundations for the field experiments in the study.

These studies explore the multiple communication

options (as explained before)

As a result we expect to be able to run more effective

field experiments in which we can focus on testing a mix

the most promising communication strategies.


Pre-project Study 1 – Method: Experiment Design

Type of

Problem

• Low probability

• High probability

Type of

Message

• Simple, interpreted

bottom line

• Technical details

“… there is a very small risk of explosion.”

OR

“…we sold nearly 15 thousand cell phones

with those lithium ion batteries and we

received 90 (ninety) complaints about

batteries that overheated or caught fire.”


Pre-project Study 1 - Results

80

70

60

50

40

30

20

10

0

73,8

66,3

30,6

25,3

Bottom line

Details

Type of Message

Risk Estimate

Duration Estimate

“…There is a strong chance of travel delay.”

“…There is a 50% chance of a 30 minutes

delay ”

High Probability


Pre-project Study 1 - Results

6,3

6,2

6,16

6,24

6,1

6

5,9

5,8

5,79

5,91

Satisfaction with choice

Confidence with choice

5,7

5,6

5,5

Bottom line

Details

Type of Message

“… there is a very small risk of explosion.”

“…we sold nearly 15 thousand cell phones

with those lithium ion batteries and we

received 90 (ninety) complaints about

batteries that overheated or caught fire.”

Low Probability


Discussion

Some results are going in the opposite direction that

we expected.

Is the level of involvement playing a role?

Is the credibility of the message an alternative

explanation for it?

Will these results hold for positive risks? (risk of

winning)

We are working on a Pre-project 2 to test these

hypothesis.


Project Field Experiments: Studies 1 and 2

(March 2012 - March 2014)


Instead of asking financial investors about hypothetical pension investment decisions,

the objective is to run field experiments with the Netspar partner organization

(Achmea) that involves actual risk communications and risk profiling questions, as

well as observing investment decisions of partner clients.


These studies will be designed in close interaction with the partner and they would

be directed towards clients with different levels of experience and in conditions of

different time horizons (e.g., an immediate decision when joining a pension plan with

a new employer vs. a yearly investment update within an existing pension plan).


The theoretical framework will be used to test different risk profile measurement

questions and messages in the field to validate the reliability of these measures to

capture consumer risk attitude.


We will also investigate how the communications increase consumer understanding

of pension risk and if they affect consumer pension portfolio type decisions.


Expected benefits of this research

Help improve pension risk profile questions and

communications effectiveness by showing how firms

could tailor the information content to consumers.

Investigate if this kind of tailored messages can be

used to increase consumer risk understanding and

hence risk attitude measures and to make consumer

decisions easier, faster and better in situations

involving risky events.

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