Abstract
Decision-making processes consumers use in investing lump sums are reviewed, focusing on how investment risk is perceived and assessed. Primary research was undertaken with investment customers to explore the role played in evaluation of investment risk by risk perceptions and risk propensity. Both the literature review and the research findings indicate the central role risk perceptions play in financial decisions. Sitkin and Weingart's risk model is used as a research framework. Risk propensity and risk perception were found to be negatively correlated, however, deposit accounts were selected for investment irrespective of how risky a respondent considered them to be. Risk perceptions and expected return were positively correlated for all asset types apart from property. Further investigation revealed that experts exhibited positive correlation in risk return judgments but novices showed no correlation. There was no correlation between risk and return for either novices or experts for property. Return expectations were positively correlated with investment allocation. Provision of past performance information appears to create an expectation for future returns around the same level as past returns. Research findings suggest that outcome history is a predictor variable, with a Positive outcome history leading to higher risk Propensity. The level of risk customers are assuming shows a significantly increasing trend.
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1has over 20 years' experience in the insurance industry, spanning life insurance, investment and general insurance. Her current focus is on lump sum investment products including guaranteed bonds and structured products. She joined Cardif Pinnacle in 1994, with responsibility for Actuarial, and was Group Actuarial Director prior to her appointment as Managing Director – Investments in October 2002. She is currently responsible for all aspects of Pinnacle's investment business from the design of new products through to service delivery.
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Byrne, K. How do consumers evaluate risk in financial products?. J Financ Serv Mark 10, 21–36 (2005). https://doi.org/10.1057/palgrave.fsm.4770171
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DOI: https://doi.org/10.1057/palgrave.fsm.4770171
Keywords
- banking
- customer relations
- e-business
- e-commerce
- financial brokers
- financial engineering
- financial institutions
- financial marketing
- financial models
- financial planning
- financial training
- insurance
- intermediation
- knowledge management
- management
- marketing
- marketing strategy
- pensions
- services quality
- virtual organisations
- decision making
- risk perceptions
- financial products
- consumer behaviour
- behaviour finance