The Role of Numerosity Bias in Investment Decisions
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2023-07-04
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en
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This master’s thesis investigates whether framing risky assets, specifically in terms of the number of shares or monetary investment amount, influences investment decisions due to the numerosity bias. The numerosity bias refers to a cognitive tendency to fixate on large numbers while disregarding relevant information. An expression of the amount could be perceived differently, even though the underlying value is fundamentally the same. When comparing the number of shares to the monetary investment amount of shares, the number of shares is less numerous. This could result in a lower risk perception. A dynamic trading experiment with 40 participants is conducted to test whether the numerosity bias affects the investment amounts of participants in risky assets. It is hypothesized that participants would invest more in risky assets when they were shown the number of shares besides the monetary investment amount. The data of the experiment is analyzed using a random effects model with robust standard errors for panel data. The analysis indicated that presenting the number of shares besides the monetary investment amount did not significantly affect the amount invested in the two risky assets.
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Faculteit der Managementwetenschappen