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Financial competence, risk presentation and retirement portfolio preferences*

Published online by Cambridge University Press:  21 August 2013

School of Risk and Actuarial Studies, University of New South Wales Sydney, NSW 2052, Australia (e-mail:
Marketing Discipline Group and Centre for the Study of Choice, University of Technology, Sydney PO Box 123, Broadway NSW 2007, Australia (e-mail:
Centre for the Study of Choice, University of Technology, Sydney PO Box 123, Broadway NSW 2007, Australia (e-mail:
Centre for the Study of Choice, University of Technology, Sydney PO Box 123, Broadway NSW 2007, Australia (e-mail:
Trinity College, University of Cambridge Trinity Street, Cambridge CB2 1TQ, United Kingdom (e-mail:
Finance Discipline Group and Centre for the Study of Choice, University of Technology, Sydney PO Box 123, Broadway NSW 2007, Australia (e-mail:


Financial regulators are weighing up the effectiveness of different templates for communicating investment risk to retirement savers since welfare depends on comprehension of risk information. We compare nine standard risk presentations using a discrete choice experiment where subjects choose between three retirement accounts. Switching between graphical or textual presentations, or between formats that emphasize benchmarks rather than return ranges or values at risk, affects predicted choices more than large changes in underlying risk. Innumerate individuals are more susceptible to presentation, and those with weak basic financial literacy are insensitive to increasing risk levels, regardless of presentation. Presentation effects are moderated but not eliminated as financial literacy improves.

Copyright © Cambridge University Press 2013 

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We thank Olivia Mitchell, Jack Gray and participants at the 2011 Econometrics Society Australasian Meetings for helpful comments. The authors acknowledge financial support under Australian Research Council DP1093842, generous assistance with the development and implementation of the internet survey from Pure Profile and the staff of the Centre for the Study of Choice, University of Technology Sydney; and excellent research assistance from Frances Terlich, Edward Wei and Jagjeev Dosanjh. Part of this work was completed while Bateman visited the School of Finance and Economics at the University of Technology Sydney. The Chair of Finance and Superannuation, UTS (Thorp) receives support from the Sydney Financial Forum (Colonial First State Global Asset Management), the NSW Government, the Association of Superannuation Funds of Australia (ASFA), the Industry Superannuation Network (ISN), and the Paul Woolley Centre for the Study of Capital Market Dysfunctionality, UTS.


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