Why Do People (Not) Invest? The Role of Return and Risk Expectations

Working Paper

What are the individual beliefs driving stock investment? In this paper, we examine the role of loss probability expectations of stock investments, i.e., how likely people think an investment loses value. Future expectations of such matter, and past estimates about the loss likelihood are severely biased, particularly so for non-investors and long horizons. To counter such bias, we design an information intervention, which leads both investors and non-investors to revise their beliefs and increase planned investment in stocks, and thereby has the potential to lower the barriers to stock market participation.

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