This paper evaluates numerous diversification strategies as a possible remedy against widespread costly investment mistakes of individual investors. Our results reveal that a very broad range of simple heuristic allocation schemes offers similar diversification gains as well-established or...

In a panel survey of individual investors, we show that investors’ second-order beliefs—their beliefs about the return expectations of other investors—influence investment decisions. Investors who believe others hold more optimistic stock market expectations allocate more of their own...

When entering retirement most people face the decision whether they would like their defined contribution account balance paid as a lump sum or to annuitize the amount. The fact that people tend to choose the lump sum even if economic reasons suggest not to is called the annuity puzzle. In a...

Although the concept of reference point dependent preferences has been adopted to almost all fields of behavioral economics, especially marketing and behavioral finance, we still know very little about how decision makers form their reference points given a sequence of prices. Our paper provides...

Behavioral finance as a subdiscipline of behavioral economics is finance incorporating findings from psychology and sociology into its theories. Behavioral finance models are usually developed to explain investor behavior or market anomalies when rational models provide no sufficient...

In a principle agent relation, the principle might be enclined to controll the agent`s choice after the result of the choice has turned out to be unsatisfactory. Such a controll requires the priciple to reconsider the original choice problem the agent faced. We know from literature from social...

Crossing the street in front of oncoming vehicles poses serious danger to young children. In this research, we tried to identify children who are particularly prone to making risky crossing decisions. We used simple games involving risk to classify 5- to 6-year-olds as risk takers or risk...