Marco Monti, Gerd Gigerenzer, Laura Martignon

Investment Choices: Simple and Fast Strategies for Complex Decisions

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Keywords: behavioral economics, heuristics, high-stake decisions, fast-andfrugal tree, ecological rationality.

This paper aims to uncover the decision processes used by average investors, including their investment goals, the information sets they consider, and the number of factors that influence high-stakes financial decisions. We present new experimental and survey data collected from bank customers at several Italian banks. Most subjects use a strict subset of the information available to them, ignoring variables that standard economic models typically assume drive investors behavior. Fast and information-frugal heuristics model the information search of many subjects observed in this study, reflecting a noncompensatory-lexicographic hierarchy of features, risk, time horizon and cost, considered in that order. Decision behavior reflects a simple combination of a fast and frugal tree and a tallying rule, predicting 78% of investors decisions.

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