Digital customization of consumer investments in multiple funds: virtual integration improves risk–return decisions

Digital technology in financial services is helping consumers gain wider access to investment funds, acquire these funds at lower costs, and customize their own investments. However, direct digital access also creates new challenges because consumers may make suboptimal investment decisions. We address the challenge that consumers often face complex investment decisions involving multiple funds. Normative optimal asset allocation theory prescribes that investors should simultaneously optimize risk–returns over their entire portfolio. We propose two behavioral effects (mental separation and correlation neglect) that prevent consumers from doing so and a new choice architecture of virtually integrating investment funds that can help overcome these effects. Results from three experiments, using general population samples, provide support for the predicted behavioral effects and the beneficial impact of virtual integration. We find that consumers’ behavioral biases are not overcome by financial literacy, which further underlines the marketing relevance of this research.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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