When faced with the challenge of forming a portfolio containing a risky and a risk-free asset, investors tend to apply the same portfolio weights independently of the volatility of the risky asset. This “percentage heuristic” can lead to different levels of portfolio risk when the same...

Studies analyzing return expectations of financial market participants like fund managers, CFOs or individual investors are highly influential in academia and practice. We argue and show that the results in these surveys above are easily influenced by the elicitation mode of return expectations....

To understand how real investors use their beliefs and preferences in investing decisions, we examine a panel survey of self-directed online investors at a UK bank. The survey asks for return expectations, risk expectations, and risk tolerance of these investors in three-month intervals between...