Finance Brown Bag Seminar
Speaker: Franca Elsner, Goethe University Frankfurt
Title: "Hello, Goodbye"? Switching behavior in guarantee products over the investment period
Abstract: Financial investment products often consist of an explicit guarantee and a stochastic profit participation on top of that. The guarantees, such as a guaranteed minimum interest rate, are legally binding whereas the expectations over the profit sharing, which are formulated by the product seller, are not legally binding. If the company cannot grant its customers the binding guarantee at the end of the period, it is considered insolvent. If the company can cover the guarantee however, it might still fail on customers' expectations concerning the stochastic element. In that case, customers have no means of enforcing what they expected to receive. However, their trust in the company and its implicit guarantees decreases. We elucidate in an experimental setting how many times or by how much a company can underperform until it loses customers or new business. This contributes to the existing literature in that the impact of trust and credibility in the context of guarantee products can be quantified.