Investment decisions play a crucial role in the way consumers manage their wealth, and therefore, it is important to understand how consumers make these decisions. This research contributes to this attempt by examining consumers’ investment decisions in response to new information about changes in uncertainty in financial markets. The authors identify possible conditions under which consumers, despite having new information about changes in market uncertainty, are less likely to assimilate the new information and consequently do not make investment decisions that are in line with their risk-aversion levels. Specifically, in a series of studies, the authors show that high rather than low need for cognitive closure can lead to a lack of openness to new information and therefore may dilute consumers’ tendency to update their investment portfolios in a way that reflects their risk preferences. In addition, the authors address possible ways to influence consumers’ assimilation of new information, to help even those with high need for cognitive closure make investment decisions that are in line with their levels of risk aversion.
AikenLeona S., and WestStephen G. (1991), Multiple Regression: Testing and Interpreting Interactions.Newbury Park, CA: Sage Publications.
2.
AmarMoty, ArielyDan, AyalShahar, CryderCynthia E., and RickScott I. (2011), “Winning the Battle but Losing the War: The Psychology of Debt Management,”Journal of Marketing Research, 48 (Special Issue), S38–S50.
3.
ArkesHal R., HerrenLisa T., and IsenAlice M. (1988), “The Role of Potential Loss in the Influence of Affect on Risk-Taking Behavior,”Organizational Behavior and Human Decision Processes, 42(2), 181–93.
4.
BarberBrad M., and OdeanTerrance (2000), “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors,”Journal of Finance, 55(2), 773–806.
5.
BaronJonathan, and RitovIlana (2004), “Omission Bias, Individual Differences, and Normality,”Organizational Behavior and Human Decision Processes, 94(2), 74–85.
6.
BrunerGordon C., HenselPaul J., and JamesKaren E. (2005), Marketing Scales Handbook: A Compilation of Multi-Item Measures for Consumer Behavior & Advertising, Vol. 4. Chicago: AMA and Thomson/South-Western.
7.
CarvalhoSergio W., BlockLauren G., Sivarama-krishnanSubramanian, ManchandaRajesh V., and MitakakisChrissy (2008), “Risk Perception and Risk Avoidance: The Role of Cultural Identity and Personal Relevance,”International Journal of Research in Marketing, 25(4), 319–26.
8.
CharnessGary, and GneezyUri (2010), “Portfolio Choice and Risk Attitudes: An Experiment,”Economic Inquiry, 48(1), 133–46.
9.
CronleyMaria L., PosavacSteven S., MeyerTracy, KardesFrank R., and KellarisJames J. (2005), “A Selective Hypothesis Testing Perspective on Price-Quality Inference and Inference-Based Choice,”Journal of Consumer Psychology, 15(2), 159–69.
10.
De DreuCarsten K.W. (2003), “Time Pressure and Closing of the Mind in Negotiation,”Organizational Behavior and Human Decision Processes, 91(2), 280–95.
11.
FamaEugene F., and FrenchKenneth R. (2010), “Luck Versus Skill in the Cross-Section of Mutual Fund Returns,”Journal of Finance, 65(5), 1915–47.
12.
FitzsimonsGavan J. (2008), “Death to Dichotomizing,”Journal of Consumer Research, 35(1), 5–8.
13.
FordThomas E., and KruglanskiArie W. (1995), “Effects of Epistemic Motivations on the Use of Accessible Constructs in Social Judgment,”Personality and Social Psychology Bulletin, 21(9), 950–62.
14.
GalakJeff, SmallDeborah, and StephenAndrew T. (2011), “Microfinance Decision Making: A Field Study of Prosocial Lending,”Journal of Marketing Research, 48 (Special Issue), S130–S137.
15.
HeathChip, and TverskyAmos (1991), “Preference and Belief: Ambiguity and Competence in Choice under Uncertainty,”Journal of Risk and Uncertainty, 4(1), 5–28.
16.
HersheyJohn C., KunreutherHoward C., and SchoemakerPaul J.H. (1982), “Sources of Bias in Assessment Procedures for Utility Functions,”Management Science, 28(8), 936–54.
17.
IrwinJulie R., and McClellandGary H. (2001), “Misleading Heuristics and Moderated Multiple Regression Models,”Journal of Marketing Research, 38(February), 100–109.
18.
IrwinJulie R., and McClellandGary H. (2003), “Negative Consequences of Dichotomizing Continuous Predictor Variables,”Journal of Marketing Research, 40(August), 366–71.
19.
KahnemanDaniel, KnetschJack L., and ThalerRichard H. (1991), “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias,”Journal of Economic Perspectives, 5(1), 193–206.
20.
KahnemanDaniel, and LovalloDan (1993), “Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking,”Management Science, 39(1), 17–31.
21.
KardesFrank R., CronleyMaria L., KellarisJames J., and PosavacSteven S. (2004), “The Role of Selective Information Processing in Price-Quality Inference,”Journal of Consumer Research, 31(2), 368–74.
22.
KayAaron C., LaurinKristin, FitzsimonsGrainne M., and LandauMark J. (2014), “A Functional Basis for Structure-Seeking: Exposure to Structure Promotes Willingness to Engage in Motivated Action,”Journal of Experimental Psychology: General, 143(2), 486–91.
23.
KivetzRan (2003), “The Effects of Effort and Intrinsic Motivation on Risky Choice,”Marketing Science, 22(4), 477–502.
24.
KosowskiRobert, TimmermannAllan, WermersRuss, and WhiteHal (2006), “Can Mutual Fund ‘Stars’ Really Pick Stocks? New Evidence from a Bootstrap Analysis,”Journal of Finance, 61(6), 2551–95.
25.
KramerLisa A., and Mark WeberJ. (2012), “This Is Your Portfolio on Winter: Seasonal Affective Disorder and Risk Aversion in Financial Decision Making,”Social Psychological and Personality Science, 3(2), 193–99.
26.
KruglanskiArie W. (2004), The Psychology of Closed Mindedness.New York: Psychology Press.
27.
KruglanskiArie W., and MayselessOfra (1988), “Contextual Effects in Hypothesis Testing: The Role of Competing Alternatives and Epistemic Motivations,”Social Cognition, 6(1), 1–20.
28.
KruglanskiArie W., PierroAntonio, MannettiLucia, and De GradaEraldo (2006), “Groups as Epistemic Providers: Need for Closure and the Unfolding of Group-Centrism,”Psychological Review, 113(1), 84–100.
29.
KruglanskiArie W., and WebsterDonna M. (1991), “Group Members’ Reactions to Opinion Deviates and Conformists at Varying Degrees of Proximity to Decision Deadline and of Environmental Noise,”Journal of Personality and Social Psychology, 61(2), 212–25.
30.
KruglanskiArie W., and WebsterDonna M. (1996), “Motivated Closing of the Mind: ‘Seizing’ and ‘Freezing,’”Psychological Review, 103(2), 263–83.
31.
KruglanskiArie W., WebsterDonna M., and KlemAdena (1993), “Motivated Resistance and Openness to Persuasion in the Presence or Absence of Prior Information,”Journal of Personality and Social Psychology, 65(5), 861–76.
32.
KwonKyoung-Nan, and LeeJinkook (2009), “The Effects of Reference Point, Knowledge, and Risk Propensity on the Evaluation of Financial Products,”Journal of Business Research, 62(7), 719–25.
33.
LeonhardtJames M., Robin KellerL., and PechmannCornelia (2011), “Avoiding the Risk of Responsibility by Seeking Uncertainty: Responsibility Aversion and Preference for Indirect Agency When Choosing for Others,”Journal of Consumer Psychology, 21(4), 405–413.
34.
LevavJonathan, and ArgoJennifer J. (2010), “Physical Contact and Financial Risk Taking,”Psychological Science, 21(6), 804–810.
35.
LoewensteinGeorge F., WeberElke U., HseeChristopher K., and WelchNed (2001), “Risk as Feelings,”Psychological Bulletin, 127(2), 267–86.
36.
MarkowitzHarry M. (1952), “Portfolio Selection,”Journal of Finance, 7(1), 77–91.
37.
MertonRobert C. (1972), “An Analytic Derivation of the Efficient Portfolio Frontier,”Journal of Financial and Quantitative Analysis, 7(4), 1851–72.
38.
MichaelyRoni, ThalerRichard H., and WomackKent L. (1995), “Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?”Journal of Finance, 50(2), 573–608.
39.
MuthukrishnanA.V., and KardesFrank R. (2001), “Persistent Preferences for Product Attributes: The Effects of the Initial Choice Context and Uninformative Experience,”Journal of Consumer Research, 28(1), 89–104.
40.
PreacherKristopher J., RuckerDerek D., and HayesAndrew F. (2007), “Addressing Moderated Mediation Hypotheses: Theory, Methods, and Prescriptions,”Multivariate Behavioral Research, 42(1), 185–227.
41.
RaghubirPriya, and DasSanjiv R. (2010), “The Long and Short of It: Why Are Stocks with Shorter Runs Preferred?”Journal of Consumer Research, 36(6), 964–82.
42.
RitovIlana, and BaronJonathan (1990), “Reluctance to Vaccinate: Omission Bias and Ambiguity,”Journal of Behavioral Decision Making, 3(4), 263–77.
43.
RoetsArne, and HielAlain Van (2007), “Separating Ability from Need: Clarifying the Dimensional Structure of the Need for Closure Scale,”Personality and Social Psychology Bulletin, 33(2), 266–80.
44.
RoetsArne, and HielAlain Van (2011), “Item Selection and Validation of a Brief, 15-Item Version of the Need for Closure Scale,”Personality and Individual Differences, 50(1), 90–94.
45.
RoetsArne, HielAlain Van, CornelisIlse, and SoetensBarbara (2008), “Determinants of Task Performance and Invested Effort: A Need for Closure by Relative Cognitive Capacity Interaction Analysis,”Personality and Social Psychology Bulletin, 34(6), 779–92.
46.
SandriSerena, SchadeChristian, MußhoffOliver, and OdeningMartin (2010), “Holding On for Too Long? An Experimental Study on Inertia in Entrepreneurs’ and Non-Entrepreneurs’ Disinvestment Choices,”Journal of Economic Behavior and Organization, 76(1), 30–44.
47.
ShivBaba, LoewensteinGeorge F., BecharaAntoine, DamasioHanna, and DamasioAntonio R. (2005), “Investment Behavior and the Negative Side of Emotion,”Psychological Science, 16(6), 435–39.
48.
SimonsohnUri (2009), “Direct Risk Aversion: Evidence from Risky Prospects Valued Below Their Worst Outcome,”Psychological Science, 20(6), 686–92.
49.
SitkinSim B., and PabloAmy L. (1992), “Reconceptualizing the Determinants of Risk Behavior,”Academy of Management Review, 17(1), 9–38.
50.
SlovicPaul (1987), “Perception of Risk,”Science, 236(4799), 280–85.
51.
SlovicPaul, FischhoffBaruch, and LichtensteinSarah (1980), “Facts and Fears: Understanding Perceived Risk,” in Societal Risk Assessments: How Safe Is Safe Enough?RichardC. Schwing, and AlbersWalter A.Jr., eds. New York: Plenum Press, 181–216.
52.
SpillerStephen A., FitzsimonsGavan J., LynchJohn G.Jr., and McClellandGary H. (2013), “Spotlights, Floodlights, and the Magic Number Zero: Simple Effects Tests in Moderated Regression,”Journal of Marketing Research, 50(April), 277–88.
53.
SrinivasanNarasimhan, and RatchfordBrian T. (1991), “An Empirical Test of a Model of External Search for Automobiles,”Journal of Consumer Research, 18(2), 233–42.
54.
SteinhartYael, KaminsMichael A., MazurskyDavid, and NoyAvraham (2013), “Thinking or Feeling the Risk in Online Auctions: The Effects of Priming Auction Outcomes and the Dual System on Risk Perception and Amount Bid,”Journal of Interactive Marketing, 27(1), 47–61.
55.
TownsendClaudia, and ShuSuzanne B. (2010), “When and How Aesthetics Influences Financial Decisions,”Journal of Consumer Psychology, 20(4), 452–58.
56.
VermeirIris, KenhovePatrick Van, and HendrickxHendrik (2002), “The Influence of Need for Closure on Consumer's Choice Behavior,”Journal of Economic Psychology, 23(6), 703–727.
57.
WeberElke U., and MillimanRichard A. (1997), “Perceived Risk Attitudes: Relating Risk Perception to Risky Choice,”Management Science, 43(2), 123–44.
58.
WebsterDonna M., and KruglanskiArie W. (1994), “Individual Differences in Need for Cognitive Closure,”Journal of Personality and Social Psychology, 67(6), 1049–1062.
59.
ZeelenbergMarcel, and DijkEric Van (1997), “A Reverse Sunk Cost Effect in Risky Decision Making: Sometimes We Have Too Much Invested to Gamble,”Journal of Economic Psychology, 18(6), 677–91.
60.
ZhouRongrong, and PhamMichael T. (2004), “Promotion and Prevention Across Mental Accounts: When Financial Products Dictate Consumers’ Investment Goals,”Journal of Consumer Research, 31(1), 125–35.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
