This site uses cookies

By using this site, you consent to our use of cookies. You can view our terms and conditions for more information.

When a gain becomes a loss: The effect of wealth predictions on financial decisions

Jennifer Trueblood
Indiana University Bloomington ~ Department of Psychological and Brain Sciences
Dr. Abigail Sussman
University of Chicago

When people make financial decisions, they need not only think about their current financial situation, but also about changes in future wealth. This work investigates people's beliefs about their future wealth and how these beliefs impact financial decisions. Using a joint experimental and computational cognitive modeling approach, we show that people's future beliefs serve as reference points when making investment decisions. These results are further supported by data from a large-scale cross-sectional survey (n = 4,606) showing that people's beliefs about the future value of their assets are related to investment decisions between risky (i.e., stock market index) and safe (i.e., bond earning a fixed amount per year) options. In both the experiments and survey, we hypothesize that outcomes that are nominally stated as sure gains can become coded as losses due to belief-based reference points. This pattern leads to an increase in riskier choices across positive outcomes for individuals with optimistic beliefs about their future wealth.



financial decision-making
reference points
Prospect Theory

There is nothing here yet. Be the first to create a thread.

Cite this as:

Trueblood, J., & Sussman, A. (2021, July). When a gain becomes a loss: The effect of wealth predictions on financial decisions. Paper presented at Virtual MathPsych/ICCM 2021. Via