Numerical information format and investment decisions: implications for the disposition effect and the status quo bias.

Investment decisions are very difficult because they involve money and can impact ourquality of life. According to the axioms of rationality, different but equivalent informationformats should not affect investment strategies. The authors perform two experimentshere, and find evidence of a strong absolute magnitude effect on investment decisions.In Experiment 1, participants (students) chose to sell a losing fund more oftenwhen returns were expressed as a percentage of variation between the buying valueand the actual value (e.g., 24%) than when they were expressed as a monetary differencebetween the buying price and the actual price (e.g., $0.24). In the context of theexperiment, the percentage format decreased the disposition effect significantly. Furthermore,describing the stock returns as ratios (e.g., ¼) increased the tendency towardthe status quo bias. In Experiment 2, the authors showed that the absolute magnitudeof the numbers shaped participants’ satisfaction with fund returns, and wasresponsible for the different choices of investment strategies.