Graphical Representation of Investment Returns and Biased Risk Taking

This paper compares different graphical representation of investment returns in terms of their potential to induce a wrong perception of the risk-reward potential of an investment. Additionally, the paper analyzes which representation format is most likely to encourage investment risk taking that is motivated by a biased risk-reward perception. The results suggest that individuals using price charts are better in assessing both the volatility and the expected return of the investment than individuals using bar charts. However, the strongest reduction of biased risk taking is achieved with a bar chart combined with a price chart. These results suggest that the recommended use of bar charts in key investor information documents can be improved by adding a price chart