Past Experience Impacts Future Investor Behavior

SAN DIEGO—Investors’ experiences with financial events strongly color their view of future investments, including their risk aversion and tolerance, said Ulrike Malmendier, Ph.D, professor of finance and economics at the University of California, Berkeley. Malmendier was the keynote speaker at REISA’s Spring Symposium here yesterday, and in her address—and immediately following in her breakout session “The Impact of Behavior Economics on Investor Decision-Making”—she said that those who have had positive experiences with financial events over the course of their lifetime tend to have more risk tolerance than those who have had negative experiences. This can impact their investment behavior significantly.

“Personal experiences affect a person’s willingness to take financial risk,” said Malmendier. “The Great Depression in the 1930s impacted risk aversion for the rest of people’s lives.”