(The) preference for a risky yet profitable portfolio can increase after (vs. before) rendering a series of investment decisions

Abstract

The author proposed that consumers would increase their preference for a risky yet profitable portfolio after (vs. before) rendering a series of investment decisions. Engaging in an investment activity, consumers often make several decisions. For example, consumers may have to choose their investment amount, investment duration, and risk exposure. Because making such investment decisions demands mental effort and time, rendering a series of investment decisions is a laborious activity for consumers. As performing such an effortful activity can lead individuals to feel entitled to monetary rewards that match their commitment (Goswami and Urminsky 2016

Inzlicht and Schmeichel 2012

Inzlicht, Schmeichel, and Macrae 2014

Schmeichel, Harmon-Jones, and Harmon-Jones 2010), executing a series of investment decisions may motivate consumers to prefer a portfolio that offers greater investment returns, even when such returns entail greater financial risks. Three experiments (N = 248, 200, and 324) yielded results consistent with the hypothesis. In the experiments, the author induced participants to express their preference for the portfolio after (vs. before) rendering a series of investment decisions by arranging the portfolio decision at the bottom (vs. top) of the screens. To illustrate, participants read a scenario in which they visited a financial institution to open an IRA or an investment fund. Then, participants responded to the items about their investment duration, investment amount, portfolio composition, etc. Since participants usually read the texts on a screen from top to bottom, arranging an item at the bottom (vs. top) of the screen would make participants to reply to the very item after (vs. before) answering the other items. As predicted, participants preferred risky yet lucrative portfolio when the item about investment portfolio was located at the bottom (vs. top) of the screen. This results indicated that participants increased their preference for a risky but profitable portfolio after (vs. before) rendering a series of investment decisions.