The Role of Risk Warnings and Information Order in High Risk Investments

Last registered on December 21, 2023
View Trial History

Pre-Trial

Trial Information

General Information

Title
The Role of Risk Warnings and Information Order in High Risk Investments
RCT ID
AEARCTR-0012726
Initial registration date
December 19, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
December 21, 2023, 8:03 AM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
Ireland
Region

Primary Investigator

Name
Danish Us-Salam
Affiliation
Central Bank of Ireland
Contact Primary Investigator

Other Primary Investigator(s)

PI Name
Anu Jose
PI Affiliation
Central Bank of Ireland
PI Name
Jane Kelly
PI Affiliation
Central Bank of Ireland
PI Name
Yvonne McCarthy
PI Affiliation
Central Bank of Ireland

Additional Trial Information

Status
In development
Start date
2023-12-20
End date
2023-12-31
Keywords
Behavior, Finance & Microfinance
Additional Keywords
JEL code(s)
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
The purpose of this research is to investigate how the provision of risk warnings and other information related to crypto assets impacts consumer knowledge and behaviour, particularly in terms of risk comprehension, perception, and the likelihood of recommending high-risk crypto assets to others. The trial aims to address the problem of understanding and mitigating risks in crypto investments.

Research has shown that risk warnings can improve consumer comprehension and perception of risk in financial products (Delias et al. 2022). Additionally, the provision of past performance information is known to create expectations for future returns at similar levels, affecting consumer risk perception and recommendation behaviour (Weber et al. 2023). However, the specific impact of combining risk warnings with information about crypto returns and volatility on consumers' likelihood to recommend high-risk assets is less clear given a lack of existing studies on this issue.

This study hypothesizes that a combined information package of risk warnings, historical return data, and volatility information will significantly influence consumers' risk comprehension, perception, and recommendation behaviours. It also explores whether minor changes in the order of the information package can mitigate common biases among crypto investors, such as anchoring bias, disposition effect and overconfidence. These findings could inform policy regarding the presentation of risk warnings and financial information in the context of crypto investments.
External Link(s)

Registration Citation

Citation
Jose, Anu et al. 2023. "The Role of Risk Warnings and Information Order in High Risk Investments." AEA RCT Registry. December 21. https://doi.org/10.1257/rct.12726-1.0
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
Intervention Start Date
2023-12-20
Intervention End Date
2023-12-31

Primary Outcomes

Primary Outcomes (end points)
Risk Comprehension, Risk Perception, Likelihood of Recommending High Risk Investments to a Friend
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Disposition Effect, Overconfidence Bias
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
This study is an online experiment where participants will be divided randomly into four groups to explore how different types of information and their presentation impact investment decisions, particularly in relation to crypto assets. The rationale for these treatments is rooted in the proposition that the sequence and type of information provided can significantly influence investment behaviours.

The sample of participants will be divided into four groups. All groups will go through a fictitious investment browsing experience where there will be two financial products namely stocks and crypto assets. The sample of participants will be divided into the following groups:

Control Group: Participants receive standard information about stocks and crypto assets, along with a general “capital at risk” warning. This group serves as a baseline for comparison, helping to isolate the effects of additional or altered information provided in the treatment groups.

Treatment Group 1: Participants are first presented with standard stock information and a “capital at risk” warning, followed by crypto asset information, a behaviorally informed risk warning, and then potential returns of crypto. This group tests the impact of presenting risk information before potential returns.

Treatment Group 2: This group follows a similar pattern to Treatment Group 1 but reverses the order of the crypto-related information: potential returns are presented before the risk warning. This arrangement allows the study to examine the effects of anchoring bias, where the initial information (in this case, the potential for returns) might disproportionately influence decision-making.

Treatment Group 3: Participants receive the standard information and warnings for stocks, followed by crypto asset information, a behaviorally informed risk warning, and information about the volatile nature of crypto assets. This group is designed to evaluate if a comprehensive information package that includes warnings and volatility details can affect the likelihood of recommending a high-risk investment to others.The varying sequences and types of information in these groups are intended to provide insights into how investors process and react to different combinations of risk and return information.
Experimental Design Details
Randomization Method
Randomization done by the in-built survey platform algorithm.
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
NA
Sample size: planned number of observations
2000 individuals
Sample size (or number of clusters) by treatment arms
500 Control, 500 warning and returns, 500 returns and warning, 500 warning and volatility
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials