Feedback, Framing, Personality and Risk Attitude -- Experiments on Factors Affecting Financial Optimism

This paper explores whether and how feedback, framing, personality, and risk attitude could affect financial optimism in an enclosed experimental environment. Evidence in this paper shows that feedback on investment performance affects financial optimism depending on whether people forecast returns in absolute values or in relative terms. Financial optimism is increased upon receiving negative feedback when participants forecast in absolute values, while receiving negative feedback reduces financial optimism when participants forecast in relative terms on portfolio return. We find framing of the experiments affects one's financial optimism level directly and forecasting in absolute terms is more likely to result in optimistic expectations. We also find financial optimism correlates with certain personality traits, such as extraversion, modesty and altruism. Financial optimism is also strongly positively associated with an attitude for risk tolerance