ISSN 1808-057X

DOI: 10.1590/1808-057x202111290

Original Article

Framing effects of information on investment risk perception*

Beatriz Azevedo Monteiro1
 https://orcid.org/0000-0002-4670-9862
Email: [email protected]

Aureliano Angel Bressan2

 https://orcid.org/0000-0002-9333-3394
Email: [email protected]

1
Ceres Inteligência Financeira, Belo Horizonte, MG, Brazil
2
Universidade Federal de Minas Gerais, Faculdade de Ciências Econômicas, Departamento de Ciências Administrativas, Belo Horizonte, MG,
Brazil

Received on 02.04.2020 – Desk acceptance on 03.02.2020 – 4th version approved on 12.28.2020

Editor-in-Chief: Fábio Frezatti
Associate Editor: Fernanda Finotti Cordeiro

ABSTRACT
The aim of this study is to verify whether the framing effects of past performance information affect the risk perception
of individuals for fixed-income and variable income fund. We assess whether risk perception varies depending on how
information is communicated to investors, considering the relevance of possible framing effects arising from how information
is presented in investment funds’ prospectuses and reports. This study is aimed at investors (individual and institutional)
and fund industry regulators, highlighting the importance of past performance presentation. This article aims to contribute
to the area by investigating how investors are influenced by varying perceptions of risk and return on fixed-income and
variable-income assets, depending on information presentation format. The approach used is based on a 2x2 factorial
quasi-experiment, in which format (within-subject) and time horizon (between-subjects) effects are tested in a sample of
143 respondents. Our results indicate that, for investment in a variable-income fund, a monthly yield presentation format
leads to higher perceived risk, and that a framing emphasizing fund value evolution leads to higher perceived returns. As
for investment in a fixed-income fund, the framing that emphasizes fund value leads to both higher perceived risk and
higher perceived returns. When comparing the results for the two types of investments, the risk perception was higher for
variable-income than for fixed income funds. However, perceived returns were higher for fixed income than for variable-
income funds due to the framing effect, although realized returns do not corroborate this perception.

Keywords: framing effect, risk perception, investment funds, behavioral finance.

Correspondence address

Beatriz Azevedo Monteiro

Ceres Inteligência Financeira
Av.Contorno, 3.800, 12º andar – CEP 04546-042
Funcionários – Belo Horizonte – MG – Brazil

*Study presented at the XXII Semead, São Paulo, SP, Brazil, November 2019.

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Framing effects of information on investment risk perception

1. INTRODUCTION

Monetary resources invested in the retail segment began to be calculated. For the most part, the Interbank
of the financial investment industry currently amounts Deposit Certificate (CDI) is the benchmark used for
to R$ 1,855.8 billion (Anbima, 2019b). The Brazilian comparison, regardless of the fund’s classification. In
Financial and Capital Markets Association (Anbima) all fact sheets, the asset’s (exposure) risk was presented,
classifies this volume into four major investment types: with the level of disclosure varying according to the
investment funds, which are governed by Instruction financial agent.
no. 555 (CVM, 2014); structured funds/Exchange- Despite the differences observed in the sheets, there
traded funds (ETFs); marketable securities; and savings. are good practice rules, conducts and codes for the
Between 2014 and 2018 investments in investment promotion of financial products (Anbima, 2019b) that
funds doubled in volume, from R$ 280 billion to R$ 596 must be followed by all agents. These documents establish
billion, an increase from 22% to 33% in the investment some rules; for example, past data must refer to the same
fund industry’s share in the total volume of financial period in every document, and they must indicate that
investments over the period. the “profitability obtained in the past is not a guarantee of
This trend can be explained in part by the fall in future results” (Anbima, 2019b, p. 27). It is also necessary
the basic interest rate, which led investors to seek more to indicate the exposure risk for the asset, among other
profitable investment options, such as investment funds requirements.
(Goeking, 2018). In this context, understanding the However, the rules do not specify how information
investment profile of Brazilians, with a view to encouraging on past performance should be presented, nor do they
investment diversification beyond savings accounts, has define the timescale for which such information should be
been a subject of research in the financial sector (B3, 2019). provided in advertisements, leaving such decision to the
Moreover, the current scenario for long-term investment discretion of fund managers. This lack of a pre-established
options is being affected by the Pension Reform debate, standard is what motivates our study, which investigates
which tends to increase investors’ interest in investment whether changes in how information is presented to
funds. Financial education in Brazil, however, falls short investors affect their perception of risk, based on the
of other countries, hindered by the lack of initiatives to factorial quasi-experiment proposed by Diacon and
disseminate financial investment knowledge (Savoia, Hasseldine (2007), in which the authors tested the risk
Saito, & Santana, 2007). perception and decision making of individuals in the
In addition, research shows that, in general, individuals United Kingdom by testing the effects of different formats
have difficulty in saving money at the expense of immediate and timescales in which past performance information
consumption (Anbima, 2016; Mullainathan & Thaler, is presented.
2000), often leading them to not save enough (Anbima, Thus, this article aims to answer the following
2018a, 2018b; Thaler & Benartzi, 2007), and their decisions research question: Does the framing effects of a fund’s
on retirement are easily influenced (Mitchell & Utkus, past performance information (according to format and
2004; Thaler & Benartzi, 2007). Moreover, financial service timescale) affect the investor’s perception of risk?
products are usually complex and difficult to assess in the
long run (Pinheiro, 2008). 1.1 General Objective
In view of this, our study was motivated by the
analysis of several fact sheets containing essential The main objective of this study is to analyze and
information from investment funds to determine how assess investors’ perception of risk according to the
the information about the fund is presented to investors framing used to present information on past investment
for decision-making on resource allocation. These fact performance.
sheets usually present information on past performance To this end, this study is divided into five sections,
in terms of cumulative return using a line chart, along the first of which is this introduction. The second section
with the fund’s benchmark. The monthly return is often refers to its theoretical foundation, presenting the theories
presented in a table format. The period for which past that underpin the study. The methodology used is the
information is presented varies by manager and, in subject of the third section, which describes the methods
general, covers the fund’s performance since returns first of analysis, the research hypotheses and the experiment

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design and construction. Next, the experiment results are of the study and the main insights obtained, along with
presented. Finally, the last section presents the conclusion the study’s limitations.

2. THEORETICAL FRAMEWORK

This section presents a brief review of the literature Silva, Barbosa, Teixeira and Reis Neto (2010) investigate
on the most relevant topics for the study design. whether framing effects (positive vs. negative) arising
from recommendations to invest in the Bovespa stock
2.1 Framing Effects and Decision Making exchange affects investors’ perception, concluding that
positive messaging make investors feel overconfident
According to the classical economic theory, human and encouraged to invest in stocks.
behavior has three main characteristics: unbounded Also in this line, the experiments developed by Sun,
rationality, utilitarianism (unbounded selfishness) and Li and Bonini (2010) demonstrate that manipulating
stable preferences (unbounded willpower) (Mullainathan scale in graphic representations significantly affect
& Thaler, 2000). These characteristics depend on rational
option evaluation (in this case, the money amount of
choices being dominant and invariant. This implies that
the scholarship vs. waiting time, and human relations
it must be possible to order a set of options by preference
vs. technical knowledge).
and that this preference order must remain the same
Kaufmann, Weber and Haisley (2013) carried out
regardless of how those options are framed or described
a series of experiments comparing the willingness of
(Tversky & Kahneman, 1984).
investors to make more risky allocations depending
Tversky and Kahneman (1981) found evidence that
on how risk is communicated: numerical descriptions,
these two axioms of rational choice are violated, presenting
graphical displays, experience sampling and a combination
selected examples of systematic reversals in individual
of these formats (called “risk tool” by the authors). Their
preferences according to how a problem was framed.
For them, a decision problem is defined by the options findings indicate that presenting information through the
given, the possible outcomes of these options and the risk tool reinforces the “commitment to the decision,”
conditional probabilities that relate outcomes to options; expressed in increased confidence in the decision, in
and then the decision can be framed according to each addition to a reduced overestimation of the probability
of these elements (Tversky & Kahneman, 1981). This of a loss, thus increasing the confidence of investors to
means that the same decision problem can be described accept more risk.
in different ways, each one representing a possible framing In this regard, Gentile, Linciano, Lucarelli and Soccorso
of the problem. (2015) also note that risk preferences and financial
According to Tversky and Kahneman (1981, p. 453), decisions are sensitive to how financial information is
“the frame that a decision-maker adopts is controlled presented.
partially by the formulation of the problem and partially Following the same assumption, this study takes the
by the norms, habits, and personal characteristics of the factorial quasi-experiment of Diacon and Hasseldine
decision-maker,” and changing the initial frame can be (2007) as a basis to evaluate the effects of past performance
very difficult, as individuals are normally unaware of information framing, in terms of both timescale (12
alternative frames (Kahneman, 2012). months or 45 months) and charts format – annual
Since Tversky and Kahneman (1981) introduced the percentage returns or accumulated value of the asset –
concept of framing effects, they have been the subject of representations often used in promotional materials for
several studies. For example, Dantas and Macedo (2013), Brazilian investment funds. We thus expect to contribute
Barreto, Macedo and Alves (2013), and Martins, Carvalho, to the literature on the topic by providing evidence of
dos Santos and da Silva (2013) investigated problem possible framing effects that may arise in fact sheets and
framing in terms of gains or losses, finding that changes performance reports provided by Brazilian investment
in framing lead to changes in choice. In the same vein, funds.

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Framing effects of information on investment risk perception

2.2 Risk Perception the name of the investment asset in the disclosure material
affects risk perception (greater familiarity leads to less
Perception of risk is one of the most important factors
perceived risk). Jordan and Kaas (2002) found that the
considered in any type of decision-making (Ganzach,
presence of the financial services agency’s logo in print ads,
2000). In this study, three of the risk perception dimensions
despite not affecting the expected return, has a significant
described in the study by Diacon and Ennew (2001) are
effect on the investment’s risk perception.
addressed: mistrust of the product or financial agent,
the seriousness of adverse consequences and volatility The risk of serious adverse consequences, on the other
of return. Similarly, Instruction no. 539 (CVM, 2013) hand, illustrated the loss aversion addressed by Tversky
considers, for assessing the investor’s risk profile, the and Kahneman (1981). Loss aversion refers to the fact
second and third of the dimensions mentioned above. that the response to losses is stronger than the response to
The risk arising from the feeling of mistrust in the corresponding gains (Kahneman, 2012). Finally, the third
product or in the financial agent is based on the probability of Diacon and Ennew’s (2001) risk perception dimensions
of opportunistic behavior by agents, due to information we investigate in this work is that of volatility of return,
asymmetry (Singh & Sirdeshmukh, 2000). Weber, which is defined by the “perception of the fluctuations of
Siebenmorgen and Weber (2005) found that providing return over time” (Jordan & Kaas, 2002, p. 130).

3. METHODOLOGY

3.1 Methods and Hypotheses To that end, our experiment followed a two-factor
factorial design. We opted for this model because it
To examine whether people’s perceptions of risk is
allows us to investigate how changes in input variables
susceptible to framing effects, we conducted a quantitative
(factors) affect experiment results (Mukerjee & Wu,
research. This technique is indicated when the aim is to
2011).
investigate a cause-and-effect relationship, verify specific
assumptions and questions, in addition to its use as an The experiment has two independent variables
analytical measurement technique (Creswell, 2007). (factors): presentation format effect (fund value and
Data collection was made through a questionnaire monthly yield), which was varied within-subjects; and
based on the study by Diacon and Hasseldine (2007). time horizon effect (short timescale – one year – and
Our aim in this study is to investigate whether changes in long timescale – four years), which was varied between-
charts format and timescale used to present investment subjects. Considering these criteria, the research subjects
funds’ past performance influence the individual’s risk were divided into four groups, all answering their
perception for each fund. respective group’s questionnaire, as shown in Table 1.

Table 1
Questionnaires’ design
Format: fund value Format: monthly yield
Treatment group
BOVA11 IMA-General BOVA11 IMA-General
A Long (A) Short (D) Long (E) Short (H)
B Long (A) Long (C) Long (E) Long (G)
C Short (B) Short (D) Short (F) Short (H)
D Short (B) Long (C) Short (F) Long (G)

Note: Fund code letter showed in parenthesis.

Source: Elaborated by the authors.

These independent variables were tested for the risk Sirdeshmukh, 2000); risk of loss, as in Kahneman and
perception variable, which was separated into three types Tversky’s conception of loss aversion (1979); and, finally,
(Diacon & Ennew, 2001): mistrust risk, which concerns the perception of risk associated with the asset’s volatility
the credibility of the product or agent’s service (Singh & was tested.

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In addition, a supplementary question was added to questionnaire (A, B, C and D, respectively). We chose
this section about the asset’s yield in comparison with to use only the day due to the several studies showing
the return from savings accounts, in order to measure the existence of birth seasonality (month/day; day of
the individual’s expectations regarding the yield on that the week) (Bobak & Gjonca, 2001; Dickert-Conlin &
investment fund according to a scale standardized for all Chandra, 1999; Haandrikman, 2004; Polasek, Koleie,
funds (named “A” to “H”). Questions about risk perception Vorko-Jovié, Kern, & Rudan, 2005). Thus, although
and expected yield were asked for each fund presented group assignment was not random, this procedure
in the questionnaire; questions 1 to 7 (all questions are prevents seasonality effects on sampling resulting from
presented in the Appendix) were thus repeated four times using the month and/or the day of the week, representing
in each questionnaire. an allocation method not influenced by the researcher
Moreover, there is a section for the simultaneous that seeks to distribute the questionnaires between the
analysis of investment funds’ types, which has three groups as close as possible to the desired proportion of
supplementary questions: the maximum amount a friend 25% per group.
should pay to receive advice from a financial analyst To prepare the charts, and in order to replicate the
(question 9); the level of difficulty in understanding the choice between variable and fixed-income funds, as used
performance charts presented (question 10); and whether by Diacon and Hasseldine (2007), we decided to use the
information on past performance is helpful in making Bovespa’s BOVA11 index fund as a proxy for variable-
investment decisions (question 11) (Diacon & Hasseldine, income funds in the Brazilian market (Figure 1). For the
2007). These questions are aimed at helping to interpret fixed-income proxy, we used Anbima’s IMA-General
the results obtained in the main question. series, since at the time of the experiment there was no
In this study, we tested three hypotheses, namely: historical series available for fixed-income index funds
in the Brazilian financial market containing data since
H1: The participants’ average risk perception varies according to
the format of the past performance charts. 2014 (Figure 2).
It should be noted that some adjustments were made in
H2: The participants’ average risk perception changes based on
framing effects arising from the timescale of past performance. relation to the charts used in the original study. First, the
“long” charts show data for 48 months (4 years) instead
H3: The participants’ average risk perception varies between types
of investment funds.
of 45 months. This change was made because, during the
preparation of the questionnaire, we observed that there
As Diacon and Hasseldine’s (2007) original research were no abrupt changes/losses in the charts, that is, the
questionnaire was written in English, a free translation 48-month chart shows the same trend as the 45-month
into Portuguese was made for its application in Brazil. The chart. This also makes them more intuitive, since this
questionnaire was built using a Google virtual platform timescale is equivalent to 4 one-year cycles and thus
(Google Forms) and was distributed to participants who corresponds to the four times the 1-year “short” charts.
work or invest in the financial market and to students at Another adjustment was made in two aspects of the
the Faculty of Economic Sciences of the Federal University expected yield charts, namely: the yield is presented in
of Minas Gerais (UFMG), using snowball sampling to monthly rates instead of annual; and yields are presented
reach new respondents. on a monthly basis instead of quarterly. These changes
Data collection using this method makes use of were necessary due to the particularities and conventions
existing relationships between individuals who share of the Brazilian financial market, which has historically
the characteristics of interest for the study (Biernacki & shown large variations and high yields on a monthly basis
Waldorf, 1981). In general, according to Vinnuto (2014), compared with international standards; thus, presenting
snowball sampling allows a continuous collection of data yields on an annual or quarterly basis, as in the original
that takes advantage of the social networks of the initial study, could distort the results obtained. Moreover, in the
research subjects to increase sample size. Essential Informations Fact Sheet of investment funds,
The assignment of individuals to treatment groups yields are shown on a monthly basis (in monthly values)
was defined by the day of birth of the research subject. for the 1-year timescale and the accumulated value for
Days 1 to 31 were grouped into four intervals (1 to 8; each year (non-annualized) for longer time horizons
9 to 16; 17 to 24 and 25 to 31) and a question at the (CVM, 2014). Thus, to make possible to compare the
beginning of the questionnaire asked participants to long- and short-term charts, we adopted the standard
select the interval to which their birthdays belonged, for short time horizons of the Brazilian Securities and
directing them to the corresponding treatment group Exchange Commission (CVM).

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Framing effects of information on investment risk perception

The charts were incorporated into the questionnaire than the long-term chart, due to a drop in June 2018,
(Figures 1 and 2) without the originals’ explanation in which becomes more pronounced on this time horizon.
parenthesis. In a preliminary analysis, we can observe Moreover, a comparison between the charts presenting
a growth trend in the 4-year timescale for the variable- monthly yields on fixed-income and variable-income
income fund, even with the high variation shown. While funds clearly shows that the fixed-income fund, although
in the short-term chart the high variation of the fund’s more stable, has significantly lower yields than the
yield is more evident, with a fall occurring in the middle variable-income fund.
of the time horizon and the recovery of the fund’s value After preparing the questionnaire, a pre-test was
reaching levels slightly above those of the beginning of carried out with a group of financial analysts and students
the time horizon. to assess whether that the changes made to the original
Fixed-income charts, in turn, do not show great questionnaire would not impair its understanding,
variations between long and short timescales, as was already especially due to the translation and the use of the Google
expected in the case of this type of fund. However, the Forms platform. The final version of the questionnaire is
short-term chart gives the impression of a greater variation available in the Appendix.

Figure 1 Variable-income (BOVA11) charts presented in the questionnaire

Source: BlackRock (2019).

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 Beatriz Azevedo Monteiro & Aureliano Angel Bressan

Figure 2 Fixed-income (IMA-General) charts presented in the questionnaire

Source: Anbima (2019b).

3.2 Statistical Procedures ANOVA, since a possible correlation between format

effect responses must be considered in the statistical
For the analysis of results, we used 2-factor repeated test because they come from the same subject (Park,
measures ANOVA (split-plot design) for parametric Cho, & Ki, 2009).
results. The ANOVA performed tests for the null hypothesis
The 2-way ANOVA methodology allows testing the that all average scores are equal, with the alternative
effect of each independent variable on the experiment hypothesis being the presence of at least one different
results, as well as assessing the interaction between the average. However, this method does not indicate, in the
factors. Moreover, our experiment has 4 independent case of the null hypothesis being rejected, for which group
samples to test time horizon effects and two related the average was different. Thus, we performed a post-hoc
samples to test format effects. This is because the same analysis using the Bonferroni multiple comparison test
individual is tested for the format effect (within-subject to identify the relationship of averages group to group.
factor) and for the time horizon effect, which is tested It should also be noted that this test controls for type 1
on different individuals, that is, for between-subject error (rejection of a true null hypothesis) (Chagas, 2016)
factors. This configuration is necessary in the 2-way for the time horizon variable.

4. RESULTS

4.1 Sample Characteristics total of 143 respondents. Respondents were assigned to

each treatment group – or type of questionnaire – according
As explained in the previous section, the questionnaire to their day of birth, which resulted in a distribution of
application involved a snowball sampling strategy, with a respondents close to 25% to each group (Figure 3).

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Altogether, 48 of the respondents are women approximately 1:2. This proportion was maintained in
(34%) and 94 are men (66%), generating a ratio of the analysis of each treatment group.

Figure 3 Percentage and total number of respondents by gender by treatment group

Source: Elaborated by the authors.

Figure 4 Number of Respondents by Age Group

Source: Elaborated by the authors.

With regard to age groups, 54.5% of respondents are In addition to these socioeconomic questions, two
29 years old or younger (Figure 4). However, despite the more questions were added to the questionnaire: whether
predominantly young profile of the sample, the second the person has financial investments and whether the
largest category was of individuals aged 50-59. This pattern person operates in the financial market, which are relevant
was maintained both among men and women and for to the research purpose. In the research sample, only
each treatment group, with the exception of type C, which 19 participants (13.29%) work in the financial market,
had a slightly higher proportion of respondents between with 13 of them having worked for up to 5 years and 2
50 and 59 years old. respondents for more than 16 years.
As for education level, most people have at least As for investment habits, 31 respondents (21.68%)
college education or are attending college (97%), with have no investments and only 6 individuals invest only
47 respondents having a graduate degree (higher level in variable-income funds. It is also possible to conclude
of education in the questionnaire). Regarding income that the majority of people who invest in variable-income
level, most individuals have an income above 5 minimum assets also invest in fixed-income assets (39 participants).
monthly wages (56% of the sample), and 29% between 1 Thus, 67 individuals have only fixed-income investments.
and 5 minimum monthly wages. Moreover, this distribution remains almost the same for
all questionnaire formats.

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4.2 Risk Perception the subsequent tests performed; and the last column
indicates the Bonferroni post-hoc test findings, if any.
This study aims to test two hypotheses regarding risk
The complete tables with the averages for each group
perception: whether the subject’s risk perception is affected
are available on request.
by both format framing effects and time horizon effects.
The 2-way repeated measures ANOVA referred to earlier 4.2.1 The effect of format and timescale on BOVA11
provides the answer to both hypotheses. fund
The results are shown in Tables 2 and 3 for BOVA11
and IMA-General, respectively. The column identified The results for the BOVA11 variable-income fund
by “Format test” (Wilks’ Lambda) shows test results (Table 2) show that the timescale effect had no impact on
for the format effect (within-subject); the “Time test” any question about risk perception, since all the p-values
column (F) presents the p-value for the test for the time for the between-subjects test were higher than 0.05 –
horizon effect (between-subjects); the “Interaction test” significance level set for this study. This fact is worthy of
column indicates the result of the interaction between attention, as it is possible to observe a significant change
the factors, which if significant indicates the result of in trends between the short and long charts.

Table 2
ANOVA test statistics for BOVA11 risk perception
BOVA11 Format Effect Tests
Type of risk Question Line Bar Format test Time test Interaction test Bonferroni test
2 5.22 5.46 0.054* 0.154 0.972 None
Mistrust
6 3.86 4.55 0.000*** 0.968 0.558 None
3 5.13 5.78 0.000*** 0.773 0.387 None
Loss
4 3.42 4.97 0.000*** 0.889 0.970 None
1 4.72 5.98 0.000*** 0.673 0.434 None
Volatility
5 5.73 5.93 0.070* 0.150 0.576 None
Savings Account Yields 7 5.57 4.77 0.000*** 0.450 0.030** None

Note: * p-value < 0.1; ** p-value < 0.05; *** p-value < 0.01.
Averages by type of chart (Line - fund value; Bar - monthly yield) grouped for all treatment groups. Values closer to 7 indicate
higher perceptions of risk. The contents of questions 1 to 7 are presented in the Appendix.
Source: Elaborated by the authors.

However, format factor tests mostly resulted in p-values​​ For the format factor, the test was repeated 4 times to
lower than 0.05, that is, averages for “line” (or fund value) assess the effect of this factor on each treatment group.
and “bar” (or monthly yield) differ statistically. Therefore, Groups A, B and D tests resulted in significant p-values,
the average values shown ​​in Table 2 allow us to conclude that is, they show a format effect impact on these groups.
that the framing of past performance in terms of monthly For group C, the result did not indicate any difference in
yields increases the perception of risk in our research format effect averages (p-value = 0.333). Thus, the results
sample, regardless of the chart’s timescale. of these tests indicate that for treatment group C there is
Finally, for question 7, on the fund’s expected no format effect impact on the variable; and for the other
yield compared with the yield on a savings account, groups, a higher expected yield is perceived in the line
complementary analysis are carried out to identify the chart than in the bar chart. Specifically regarding the line
reason for the interaction. For this purpose, ANOVA was chart, the type C (short/short) timescale effect shows a
separately performed for each of the factors. The test was relatively lower average than that of the other timescales,
then performed twice for the timescale factor: one for the but this effect alone could not reject the null hypothesis
average yield effect (“bar”) and another for the fund value of the general timescale effect.
effect (“line”), which resulted in non-significant p-values​​ In summary, for the BOVA11 variable-income fund,
(0.419 and 0.076, respectively). Moreover, the post-hoc when past performance is presented in terms of monthly
tests did not indicate any grouping of treatment groups yields, participants perceive a higher risk than in the fund
for any of the format effects. However, it should be noted value chart. In contrast, a higher expected yield is perceived
that the average for group C “line” effect is lower than for in the line chart. That is, past performance presented in a
other format effect averages. bar chart is considered more risky and generating lower

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expected yields than in a line chart presentation, regardless chart presentation, in this study the expected yield is
of the time horizon covered by the charts. higher when presented in terms of fund value (line) for
These results are partially compatible with those from our study sample.
the original study by Diacon and Hasseldine (2007): as in
the original results, timescale effects were not significant 4.2.2 The effect of format and timescale on IMA fund
for risk perception and, in general, the perception of risk For the IMA fixed-income investment fund, the
was also higher when past performance was presented in ANOVA results (Table 3) showed some variations in
terms of monthly yields. However, contrary to the findings impact. As no interaction between the factors was found
of Diacon and Hasseldine (2007), which showed higher for any of the questions, it was not necessary to test for
expected yields on the variable-income fund for the bar simple effects.

Table 3
ANOVA test statistics for IMA risk perception
IMA Format effect Tests
Type of risk Question Line Bar Format test Time test Interaction test Bonferroni tests
2 4.43 3.97 0.00*** 0.004*** 0.59 (A e D) (B, C e D)
Mistrust
6 3.70 3.62 0.49 0.53 0.89 None
3 4.38 4.08 0.03** 0.052* 0.94 (A, B e D) (A, C, D)
Loss
4 2.95 2.93 0.88 0.26 0.35 None
1 3.34 3.43 0.55 0.00*** 0.63 (A e C) (B e D)
Volatility
5 5.20 4.52 0.00*** 0.65 0.41 None
Savings Account Yields 7 5.57 5.10 0.00*** 0.55 0.13 None

Note: * p-value < 0.1; ** p-value < 0.05; *** p-value < 0.01.
Format effect averages by type of chart (Line - fund value; Bar - monthly yield) grouped for all treatment groups. Values closer to
7 indicate higher perceptions of risk. The contents of questions 1 to 7 are presented in the Appendix.
Source: Elaborated by the authors.

The analysis of the instrument for each question shows caused by the factors tested. Even so, the analysis shows
that in question 2, about receiving biased information, that for the mistrust risk the respondents’ risk perception
both the format effect and the timescale effect influence is higher for the line chart than for the bar chart. Moreover,
risk perception. For question 6 (on how trustworthy are the respondent’s risk perception rose considerably when
product and service providers), which seeks to measure the short-term IMA was shown alongside the long-term
the same type of risk, the test did not show any impact BOVA11 chart – Group A (Table 4).

Table 4
Question 2 averages by format and timescale for the IMA Fund
Format Effect
General format
Type of risk Question Treatment group Time
Line Bar average1

A Short 5.23 4.49 4.86

B Long 4.00 3.53 3.76
Mistrust 2 C Short 4.11 3.82 3.96
D Long 4.39 4.06 4.22
Total Grouped 4.43 3.97 4.20

Note: 1 Bonferroni tests indicated by formatting (bold or italic).

Averages by treatment group (timescale and format) for question 2: “Is there a risk of receiving unsound and biased information
from those who sell or recommend this product?”
Source: Elaborated by the authors.

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 Beatriz Azevedo Monteiro & Aureliano Angel Bressan

The same is true for the loss risk: while question 3 – question 3, for which there is format effect impact, the
about serious negative consequences – shows impacts survey respondents indicate that the fund value chart
from both the format effect and the timescale effect is more risky than the monthly yields chart. It is also
(even considering p-value > 0.05 for Bonferroni tests interesting to observe a dichotomy: group B, in which
in the Table 3, showing that groups B and C have the two types of funds are in the “long” time horizon, has
different averages); question 4 about “the friend losing the lowest perception of loss risk; group C, in which both
all the money invested” has the same average for all types of fund are presented in the “short” time horizon,
combinations of factors. For this risk statement, observing has the highest risk perception (Table 5).

Table 5
Question 3 averages by format and timescale for the IMA Fund
Format Effect General format
Type of risk Question Treatment group Time
Line Bar average1

A Short 4.49 4.14 4.31

B Long 3.71 3.56 3.63
Loss 3 C Short 4.68 4.34 4.51
D Long 4.58 4.25 4.42
Total Grouped 4.38 4.08 4.23

Note: 1 Bonferroni tests indicated by formatting (bold or italic).

Averages by treatment group (timescale and format) for question 3: “How serious could the consequences of owning this
product be, should it prove unsatisfactory?”
Source: Elaborated by the authors.

As for the questions about the volatility risk, “short” (first grouping) and groups B and D present
question 5 – how great the risk of the investment value the “long” time horizon (second grouping). These two
is going down or up – points to an impact of the format analysis combined show that, when there is an impact
effect on the averages; and question 1, about product of the format effect, the line chart is considered riskier;
uncertainty, is only influenced by the timescale effect. and when there is an impact of the time horizon, the
It is worth mentioning that Bonferroni tests reinforce volatility risk of is perceived as higher for the charts in
this difference arising from varying timescales, since which only 12 months of past performance are presented
the charts presented in treatment groups A and C are (Table 6).

Table 6
Question 1 averages by timescale for the IMA Fund

Type of risk Variable Treatment group Time Format average

A Short 3.96
B Long 2.90
Volatility Question 1 C Short 3.72
D Long 2.92
Total Grouped 3.38

Note: Averages by treatment group (timescale and format) for question 1: “How much uncertainty is there in terms of the
expected return for this product?”
Source: Elaborated by the authors.

Finally, for question 7, about the fund’s yield compared about this variable, with the fund value chart being
with the savings account’s yield, we only found an impact perceived as representing higher yields for the respondent
from the format effect on the respondents’ perception than the monthly yield chart.

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Framing effects of information on investment risk perception

In summary, although the impact of the factors varies is interesting, since the variable-income fund charts
for each question, there is a pattern to the responses in clearly shows the global trend changing when comparing
which: (i) the line chart for the fixed-income fund is the time horizons presented. However, the IMA fixed-
generally perceived as representing more risk than the bar income index maintains its global growth trend in the two
chart, and (ii) a short time horizon for past performance timescale frames, with only a drop in the middle of the
presentation leads to higher risk perception. Additionally, “short” time horizon, but which soon resumes its growth
respondents attribute a higher yield to the “fund value” trend. This result suggests that the impact of a sharp
chart than to the “monthly yield” chart. This leads to a fluctuation is perceived more intensely in environments
combination in which the chart with the higher perceived where fluctuations are usually small; thus, the unusual
risk is the one that generates the perception of higher abrupt drop shown in the chart represented a salience
expected yields. These results differ from those obtained factor (Mussweiler & Schneller, 2003) for respondents,
by Diacon and Hasseldine (2007), who did not find either who were more inclined to make judgments based on the
significant format effects or significant timescale effects extreme importance attributed to that drop (Kahneman,
for fixed-income funds in terms of risk perception and 1999).
expected yields. Finally, ANOVA was repeated to test the third
hypothesis of this study, assessing whether risk perception
4.2.3 Framing effects and the types of investment fund and expected yields vary significantly between BOVA11
The comparison between the results obtained shows and IMA for each type of chart, considering timescale
that, while a higher risk is perceived in the bar chart for the effects. As shown in Table 7, the risk values attributed
​​
variable-income fund (BOVA11), the line chart generates to the variable-income fund are, in general, statistically
the perception of a more risky investment for the fixed- higher than those attributed to the fixed-income fund.
income fund. Kahneman and Tversky’s Prospect Theory This result shows that neither format effects nor time
(1979) offers a possible explanation for this phenomenon: horizon effects altered the universal risk ratio: fixed-
the “monthly yield” chart is a graphical presentation of income assets present less risk than variable-income
results in terms of gains or losses. Thus, as the variable- assets for the survey respondents.
income fund presents more and greater negative returns, However, this relationship was not maintained in
when its presentation highlights variation and not the terms of yields (question 7): the expectation of yields
final yield, such framing may imply a greater feeling of that are higher than the savings accounts was greater
loss aversion in the respondents. This does not happen for the fixed-income fund’s “bar” charts and for the
with the IMA, as it does not show any major negative group C “line” chart – for the other groups’ (A, B and
variations in monthly yields. Thus, despite presenting low D) “line” charts, the average for BOVA11 was higher,
yields, the “bar” chart removes the variations perceived but the difference observed was not significant. Line
in the “line” chart. chart results then show that respondents were more
For both types of fund, the fund value chart generates sensitive to the observed trend than to the chart scale,
a feeling of higher expected yields. In other words, in since higher averages for BOVA11 were expected. This
the combination for the IMA fixed-income fund, the idea is addressed in the study by Griffin and Tversky
perceived risk-return ratio follows the same pattern: (1992), in which people give more importance to the
the asset with a higher perceived risk, also has a higher strength of the recommendation (trend) than to the
expected yield. However, this combination does not hold weight of the evidence (chart scale).
for the variable-income fund. This implies that framing For the bar chart, a possible explanation for the
past performance in terms of fund value can create a expectation of higher yields on the IMA fund is the loss
perception bias, in which there is a lower perceived risk aversion phenomenon (Kahneman & Tversky, 1979),
and a higher expected yield – inflating the investor’s which we discussed earlier, with people penalizing the
perceived risk-return ratio. variable-income fund for the negative yields presented,
Regarding the timescale effect on risk perception, while ignoring the fact that it also offers high positive
it only had an impact for the fixed-income fund. This yields.

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 Beatriz Azevedo Monteiro & Aureliano Angel Bressan

Table 7
Global average for risk perception by type of fund
Type of fund
Type of risk Variable2 Test
BOVA11 IMA
Question 2 5.35 3.38 Line*** and Bar***
Mistrust
Question 6 5.34 4.20 Bar***
Question 3 5.46 4.23 Line*** and Bar***i
Loss
Question 4 4.20 2.94 Line*** and Bar***
Question 1 5.83 4.86 Line***i and Bar***i
Volatility
Question 5 4.20 3.66 Line*** and Bar***
Saving Accounts Yields Question 7 5.17 5.34 Line C*** and Bar**

Note: i. p-value for significant interaction.

* p-value < 0.1; ** p-value < 0.05; *** p-value < 0.01.
The last column indicates for which format ANOVA showed a difference between the averages. The content of the questions is
presented in the Appendix. The superscript “i” indicates a significant p-value for the interaction.
Source: Elaborated by the authors.

This result indicates that survey respondents felt less format effect (fund value in line chart vs. monthly yield in
perceived risk and higher yields for the fixed-income bar chart) arising from how past performance is presented
fund, with the variable-income fund perceived as riskier to respondents, their answers to the supplementary
and offering lower returns, thus confirming our third questions show no impact due to this effect. The individual,
hypothesis. therefore, is willing to pay a similar amount regardless of
However, it is worth mentioning that, although the the presentation format (question 9), assigning the same
measurement of perceived risk depends mainly on the value to past performance information (question 11).

5. CONCLUSIONS

The results of this study indicate, in general, that format those used in this study. Although the information is
effects affect the respondent’s risk perception for the presented in terms of yields, the chart is essentially the
two types of fund (fixed-income and variable-income) same: presenting fund value on a daily basis is nothing
in opposite ways: while for fixed-income IMA-General more than presenting accumulated yields for the time
index the line chart increases risk perception, for BOVA11 horizon of interest. That is, these ads use a chart format
variable-income index the bar chart gives the feeling of that, according to our study’s findings, leads to a decrease
a riskier investment. in risk perception and to higher perceived returns for the
Established behavioral theories, such as loss aversion variable-income fund (thus inflating the perception of
(Kahneman & Tversky, 1979), may explain our findings gains in the risk-return ratio); leads to higher perceived
regarding both the higher perceived risk for BOVA11 returns for the fixed-income fund; and, despite leading to
and the lower expected yields when past performance is a higher perceived risk in the bar chart presentation for
presented in terms of monthly yields; or salient comparison the fixed-income fund, this format still makes the fixed-
standards (Mussweiler & Schneller, 2003) can be used to income fund to be perceived as less riskier in comparison
explain the greater perceived risk for IMA-General when with the variable-income fund.
less past performance information is presented (“short” Moreover, compared with the study by Diacon and
time horizon chart), especially when using the fund value Hasseldine (2007), our study’s findings are convergent with
format; or even use Griffin and Tversky’s (1992) concepts regard to the risk perception for the variable-income fund,
of strength vs. weight to address the greater expected both for the format effect and for the timescale effect. They
yields for IMA compared with BOVA11 in line chart differ, however, in the expected returns on the variable-
presentations. income fund, and in the risk perception and expected
It is also important to highlight that the information returns on the fixed-income fund. In addition, the study by
disclosed in financial services agents’ advertisements is Vrecko, Klos, and Langer (2009) corroborates the findings
currently presented in the form of line charts similar to of this study, concluding that the investor’s preference for

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Framing effects of information on investment risk perception

investments with more asymmetric distributions, either unbiased comparisons between investment options.
right- or left-skewed, is strongly dependent on the asset To this end, we suggest that further research should be
presentation format, indicating that these preferences conducted to determine whether a more adequate graphic
occur because different presentation formats highlight presentation of performance information can be achieved,
specific aspects of the asset. thus assisting in developing new regulation. In addition,
Finally, due to the fact that, in this study, we this study has a limitation due to the small sample used,
identified the presence of framing effects, it becomes suggesting that new studies should be carried out with
relevant to consider regulatory mechanisms to induce a larger number of participants in order to confirm
the establishment of format standards for investment whether our findings about the impact of framing effects
performance presentation, allowing investors to make are recurrent.

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Framing effects of information on investment risk perception

APPENDIX

The Portuguese version of the questionnaire used in this study present some differences in relation to the original
English version used in the study by Diacon and Hasseldine (2007), which were maintained in the English version
presented below.

Research instrument

Question 1
A friend (João) has asked you for some advice on how he should invest money towards his retirement. He intends
to make regular contributions to a retirement savings plan of R$600 a month over the next 10 years. This amount
will be invested in one of two investment funds below. He wants you to help decide which fund to choose.
Please look at the charts below. They show the most recent performance of the two funds. The chart shows how the value
of an investment in the fund has developed over time. Of course, the past performance of these funds is not necessarily
a reliable guide to their future performance.

Question 2
Another friend (Pedro) also asked you for advice on how he should invest money towards his retirement. He
intends to make regular contributions to a retirement savings plan of R$600 a month over the next 10 years. This
amount will be invested in one of two investment funds below. He wants you to help decide which fund to choose.
Please look at the charts below. They show the most recent performance of the two funds in terms of monthly yields. Of
course, the past performance of these funds is not necessarily a reliable guide to their future performance.

Questions about each fund:

Please choose one of the numbers on the 1 to 7 scale.
1. How much uncertainty is there in terms of the expected return for this product?
(None) 1 2 3 4 5 6 7 (Very High)
2. Is there a risk of receiving unsound and biased information from market professionals who recommend this product?
(No risk) 1 2 3 4 5 6 7 (High Risk)
3. How serious could the consequences of owning this product be, should it prove unsatisfactory?
(Not serious) 1 2 3 4 5 6 7 (Very serious)
4. How great is the risk of your friend losing all the money put invested in this product?
(No risk) 1 2 3 4 5 6 7 (Substantial risk)
5. What is the chance of the value of this investment going down or up over the next few years?
(No chance at all) 1 2 3 4 5 6 7 (High chance)
6. How trustworthy are the professionals who manage such type of investment?
(Completely) 1 2 3 4 5 6 7 (Not at all)
7. How does the return on this investment compare with the expected return on a society savings account?
(Much lower) 1 2 3 4 5 6 7 (Much higher)

Questions about the choice between the two funds:

8. Which fund do you recommend as the most suitable means of investing for your friend’s retirement?
9. What is the maximum amount he should pay for advice from a qualified financial adviser? (write only the round
amount, if you think advice is unnecessary put 0)
10. How easy is it to understand the above performance charts?
(Very easy) 1 2 3 4 5 6 7 (Very difficult)
11. Is information on past performance helpful in making investment decisions?
(Helpful) 1 2 3 4 5 6 7 (Useless)

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