Investor Characteristics and Long-Term Financial Decision Making

Project Start:01/2018
Researchers:Konstantin Bräuer, Andreas Hackethal, Christine Laudenbach, Steffen Meyer, Thomas Pauls, Annika Weber
Category: Household Finance
Funded by:LOEWE

There is no shortage in theories on what drives household financial decisions. However, two major challenges make it difficult to empirically test many hypotheses. First, finding exogenous variation in the variables of interest is hard, if not impossible. Second, many of the determinants of house-holds’ financial decisions such as expectations, risk attitudes, financial literacy, or perceptions of financial products and services, are inevitably unobserved in standard financial datasets.

As one way out, randomized controlled trials (RCTs) artificially induce exogenous variation in the variables of interest. This ultimately allows to study their causal effects on individuals’ financial be-haviors. As a second approach, in cases where RCTs are not possible, correlational evidence from matching survey measures of behavioral factors to administrative data on individuals’ financial choices may provide novel insights into what governs households’ financial decisions.

In our project, we launched an online survey and experimental platform (named "Finanzforum") together with a large European retail bank in November 2017. We approached more than 80,000 of their clients to attain a stratified panel of some 4,000 bank clients willing to participate in the panel. We run 3-4 rounds of surveys and RCTs on the platform each year are also in a position to conduct ad-hoc questionnaires after exogenous shocks like market downturns or inflation hikes. Important-ly, the survey data is linked to broad and deep historical (up to ten years) and concurrent adminis-trative data on clients’ financial activities with the bank. This allows to observe any response in fi-nancial behaviors of surveyed and treated clients and several control groups before and after our interventions. Nonetheless, the anonymity of participants is guaranteed at every point in time and very high data protection standards are applied in the administration of the panel. In accordance with the bank, the platform shall be in place for several years. The platform shall be accessible for researchers outside the core project team in the future.

To date, three survey waves have been run. The initial questionnaire run in August 2018 elicited key behavioral and demographic attributes missing in the administrative bank data such as risk prefer-ences, financial literacy scores, and attitudes towards financial decision-making. The second survey wave focused on households’ demand for financial advice. The third wave did contained a random information treatment aiming at spurring respondents’ participation in equity investments through educational videos. In November 2019, the fourth wave of the survey will be dedicated to the elici-tation of standard risk measures from the experimental literature. The goal is to empirically vali-date, which of the experimental measures best explains respondents’ real-world behavior.

Related Working Papers

No.Author/sTitleYearProgram AreaKeywords
219Andreas Hackethal, Christine Laudenbach, Steffen Meyer, Annika WeberClient Involvement in Expert Advice: Antibiotics in Finance?2018 Household Finance Financial Advice, Individual Investors, Client Involvement