The Less You Know, the More You Are Afraid of—A Survey on Risk Perceptions of Investment Products

Abstract

We conducted a survey on risk perceptions of investment products in the German-speaking area of Switzerland. Unlike the typical two-factor structure documented in the previous literature, we found that knowledge-related scales were highly correlated with risk-related scales, whereas the correlation between perceived risk and historical risk measures was much lower. The respondents perceived those easier-to-understand products as less risky, which was likely driven by the familiarity bias. Our results are in line with the affect heuristic and risk-as-feelings hypotheses.