Tomorrow at 1.30 the Behavioural Science Centre is delighted to host an online talk from Alycia Chin of the SEC.  Teams link here.

Title: Beliefs about the Stock Market: Framing Effects in Subjective Expectations

Abstract

Financial models argue that investment decisions partially depend on expectations about stock market returns. However, reported expectations – like any other survey responses – may depend on the wording of the questions eliciting those expectations. In the current research, we explore a relatively novel “probability” framing effect. Across 3 studies, respondents appear to hold significantly different beliefs about future stock market performance depending on whether they report the probability the stock market will go up or down, with a difference in beliefs of up to 15 percentage points. The direction of the difference is the opposite of most framing effects that display descriptions of attributes, with participants who are asked about stock market declines appearing more optimistic. We find this “probability” framing effect moderates with subjective numeracy and financial literacy; however, not with survey experience, as differences in beliefs persist over repeated survey administration for many months. We rule out several potential explanations for this effect, and discuss implications of a “probability” framing effect for future researchers and survey designers to consider.

Keywords: stock market, subjective expectations, framing effect