10 June 2022

---

Psychology and Risky Stocks

Author: Luigi Campopiano

---

Buying stocks that can then prove to be extremely dangerous for your savings balance or unbridled financial transactions with the use of leveraged products may not depend only on you: on the contrary, it risks not depending on you at all. It is as if the notions of behavioral finance, those that were used to read the right behaviors to be followed by an investor in relation to the performance of the financial markets, have been used improperly, to understand how to exercise psychological power towards investors and of the savers themselves. So you don't understand why you end up with so much money in your current account for fear of using any financial instrument and then dive into the purchase of financial services that you don't even know.

We have the explanation thanks to an American scientific research that deals with behavioral finance and which also uses an analysis of what is happening around us. The research highlights how the contemporary digital environment overwhelms investors with attention spurs from multiple sources such as e-mails, advertisements, social media messages and push notifications. The stimulus activities are extremely designed to act on the decision-making capacity of the people who receive these impulses.

Research:

1. Analyzes investor behaviors, often contradictory to the styles usually used;

2. Explain the risk-taking behavior of individuals that are critical to the study of choice under uncertainty, which allows for a better understanding of financial markets and financial stability. Furthermore, there is a growing theoretical recognition of how investor attention has implications for asset prices;

3. It offers a link between attention and risk taking by concluding that the factors triggering affective attention play an important role in the taking of risks by individuals. The main challenge lies precisely in analyzing the link between the stimuli of individual attention and the assumption of financial risks: it is the push messages that trigger the purchase reaction.

The psychological literature distinguishes between:

• “endogenous” attention (willingness to deliberately deal with an issue);

• "exogenous" attention (process that builds external stimuli capable of redirecting the attention of an individual, regardless of goals, intentions and awareness).

The researchers argue that the triggers of attention stimulate the taking of financial risks and that affective responses provide individuals with a quick but rough assessment of the risks (quick actions, especially in the purchasing phase). Attention triggers are greater and relevant to financial risk-taking by male, young and less experienced investors and The increase in risk-taking following an attention trigger is also stronger for stocks in tendency to attract more endogenous attention.