How Can Financial Decisions Be Manipulated?

You aren’t as in control of your decisions as you think; in fact, your choices are quite malleable. For years, economists have tried to model the way in which prior outcomes can influence the future risk preferences of... [ view full abstract ]

You aren’t as in control of your decisions as you think; in fact, your choices are quite malleable. For years, economists have tried to model the way in which prior outcomes can influence the future risk preferences of financial decision makers. The applications are endless. For the most part, the literature is both polarized and contradictory. However, when the framing of decisions is controlled for, risk preferences suddenly become predictable. In my experiment, I created two main treatment groups (market setting and two-staged setting) and exposed subjects to prior losses or gains. I found that the framing in which decisions are presented was significantly influential on risk preferences. In the market setting, compared to the two-stage setting, subjects were significantly more risky following a loss and more risk averse following a gain.

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