The Psychology of Financial Decisions
Prof. Stefan Zeisberger is on a mission to improve investment decisions and financial well-being, with the human being at the center of his research. He shares insights into his latest findings on risk perception, sustainability and digitalization. Text: Cornelia Kegele & Victoria Watts
Your research focuses on behavioral and experimental finance. What is it about?
My research area is a combination of two seemingly opposing fields: finance, with its supposedly rational thinking and thinkers, and psychology, which explores the “softer” side of human behavior. This intersection is powerful because even financial professionals often make the same fundamental mistakes as retail investors. Through my research, I am committed to pursuing research with real-world impact.
Why is the psychological aspect so important?
I’ve seen many interesting examples of how understanding the psychology of finance and financial communications is crucial. For instance, an American bank once tried to calm its customers during a turbulent financial period by sending reassuring emails. However, their emails had the opposite effect. Based on my research, I aim to highlight such mistakes so that people can make better decisions.
One of your other core topics is risk perception.
Risk perception is fascinating because it systematically deviates from actual risk. Personal experiences, upbringing, and even cultural background play a huge role in how people view risks. For example, people who grew up during times of economic downturn tend to be more cautious with their finances throughout their whole lives. Take a special case in Germany: People in the Eastern federal states still invest less in stocks compared to those in the West also because of historical skepticism toward capitalism. Another interesting aspect: People see risks as higher when they don’t understand something well. Financial education and simulated investment games can help bridge that gap.
Across all areas, sustainability is THE current big topic - also for you?
Yes, I’m currently studying why people choose to invest sustainably – or not. In a recent study where we collaborated with a German robo advisor, we found that only 30 percent of new customers opted for sustainable investments. Of those, most believed sustainable portfolios would give better returns. Only 12 percent of all investors were willing to sacrifice expected returns, which was a surprisingly low number given earlier research in the field. Generally, I explore the barriers to sustainable investing, such as trust issues, greenwashing concerns, or simply a lack of knowledge. Based on that, I aim to explore how to measure sustainability in investments and how to communicate these concepts more effectively to investors.
What role plays digitalization in your research?
Digitalization changes the whole world dramatically and by that also investments. Therefore, I’m investigating how digital technologies shape investment behavior. Today, it’s easier than ever to invest. You can download an app and start investing with just a few clicks. This so-called democratization of financial markets is exciting, but it also comes with risks. The shift from computer to smartphone trading has led investors to act faster and more impulsively. We have seen that this leads to riskier portfolios. Additionally, social media increasingly influences investment behavior, with more people getting financial information from less controlled sources. I explore the impact on our behavior, on financial markets and the financial services industry, for example which new products and services will emerge.
Stefan Zeisberger is a professor of Fintech – Experimental Finance at the Department of Finance UZH.
Source: Oec. magazine issue #22