Economical decisions are often characterized by risk and uncertainty. Therefore the
perception of risk and returns are central factors affecting economic behavior. How
individuals make investments should depend on the perception of investments’ risk
and returns. When aiming for a deeper understanding of how people handle risk, it is
beneficial to go beyond a purely behavioral approach and explore the cognitive and in
particular neurocognitive mechanisms underlying decisions.
In the proposed project we will investigate how people perceive the risk and the return
of investments and how this perception is influenced by the context of the investment
situation. The first subproject explores how people perceive investment assets that are
verbally described by their expected return and the returns’ variance. The second
subproject explores whether and how perception of risks and returns of investments
changes when the investment is described in a portfolio context. The third subproject
examines how the composition of investment options influences the perception of and
the choice between the investment options, i.e. how the perception of and the choice
between investment options are influenced when a third option is added to the original
choice set. To explore our research questions it is essential to bring economic,
psychological, and neuroscientific knowledge together. Therefore in this project, we
will combine paradigms from behavioral economics and neurocognitive research to
investigate people’s risk perception and risk preferences.
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