The Impact of Outcome Elaboration on Susceptibility to Contextual and Presentation Biases

Abstract

The authors examine an important anomaly in investment behavior—namely, the tendency to fall prey to the effects of contextual and presentation biases, which emerge when people make different decisions as a function of how information is presented to them. They also identify an important factor that moderates these effects. The results from four studies show that investors with a stronger tendency to engage in predecision outcome elaboration are less susceptible to various contextual and presentation biases and are more likely to make consistent investment choices. Furthermore, the authors find that encouraging predecision elaboration on both the potential benefits and the potential risks of investing helps investors who tend not to engage in such elaboration become less influenced by peripheral cues, such as information framing and presentation mode. The findings offer implications for decision research and for the design, presentation, and communication of financial products.