Overview of the Research
Consider two recent mutual fund advertisements. In the first ad, for T. Rowe Price funds, a man confides, “Investing more aggressively today means I could be calling more of the shots when I retire.” In contrast, a Scudder Investments ad warns, “What if your kid gets into Harvard? What if your mother needs long-term care? What if both happen at the same time?”

How might these ads, one focusing on investors’ desire for independence, and the other on their sense of responsibility to others, affect their investment decisions? Will investors whose attention is called to their own aspirations choose different portfolios from investors who are reminded to protect others who depend on them?

To answer these questions, our research examined consumers’ self-views, their goals, and their choices of investments. Past research has shown that when consumers see themselves as independent of others, promotion goals are more important and consumers focus on achieving gains. In contrast, when consumers see themselves as interdependent and connected with others, prevention goals are more important and consumers focus on avoiding losses.

In the first experiment, we study the effects these different self-views have on consumers’ investment choices. We vary consumers’ self-views by showing them an ad that encourages them to think about themselves in either an independent manner or an interdependent manner. We find that consumers’ investment choices are influenced by their self-views. Independent self-view consumers, who focus on achieving gains, are more likely to choose risky investments with high expected returns than interdependent self-view consumers, who are more concerned about avoiding losses.

The second experiment examines a more complex situation than the first. Most investors have already acquired an investment portfolio when they make a new investment. How might the effects of self-view on investment choice depend on consumers’ initial portfolios?

Recent research shows that consumers with prevention goals prefer to maintain the status quo. In investment terms, maintaining the status quo means that consumers continue to invest as they have in the past. For example, an investor with a low risk portfolio adheres to the status quo by choosing more low risk investments. In contrast, research shows that consumers with promotion goals are less influenced by the status quo. We therefore predict that consumers with interdependent self-views and prevention goals will be influenced more by their investment portfolio than consumers with independent self-views and promotion goals.

To test this proposition, we first manipulated consumers’ self-views so that they were either independent or interdependent. Then, we gave consumers a hypothetical initial portfolio of either low- or high-risk investments. Finally, we asked consumers to choose a new investment.

Consistent with the findings of the first experiment, independent self-view consumers chose riskier investments with higher expected returns than interdependent self-view consumers. However, consumers’ choices also depended on their initial portfolio: interdependent self-view consumers were affected more by their initial portfolio than independent self-view consumers. Interestingly, interdependent self-view consumers chose riskier investments when their initial portfolio was high-risk than when it was low-risk! This means that interdependent self-view consumers’ desire to maintain the status quo – to choose investments similar to those in their initial portfolio – outweighed their desire to avoid losses.

These experiments show that consumers’ self-views influence their choices in two ways. In both, interdependent self-view consumers made less risky choices than independent self-view consumers. We therefore conclude that self view has a direct effect on choice. The second experiment also showed that consumers’ self-view affected their desire to maintain the status quo, and in turn their choices. In this case, self-view had an indirect effect on choice.

It is worth noting that although choosing a status quo alternative may decrease perceived risk, it can result in a less diversified portfolio, actually increasing risk. On the other hand, being consistent with past choices may help consumers lessen the influence of messages they encounter in the environment, such as advertising. As a result, the choices of consumers influenced by the status quo may be more consistent with their long-term goals.

Significance of the Research
We often believe that consumers’ risk preferences endure over time, that is, they are “chronic.” However, broadly speaking, our results suggest that in some situations consumers’ risk preferences can be shifted: an ad designed to encourage thinking about either an independent or an interdependent self-view can influence consumers’ choices. Two other recent JCR articles have also found that consumers’ risk preferences can be shifted. In her 2003 article, Mandel shows that consumers choose riskier gambles after watching one film clip than another. In a 2004 article, Zhou and Pham find that when an investment is described as part of a trading account, consumers make riskier choices than when it is described as part of a retirement account. These findings and ours are important because they imply that, instead of accepting consumers’ risk preferences as “given,” marketers can actively manage them.

Implications of the Research for Consumers
Consumers need to be aware that situational factors, such as marketing messages, can influence their risk preferences. They may therefore want to avoid making important investment decisions after encountering a single information source, such as a website for a mutual fund company. Instead, they should rely on several sources of information, such as Morningstar reports and articles in investment magazines, as well as the fund-provider’s website. They should also mull over their investment decisions for a period of time, rather than decide immediately. This makes it less likely that the same situational factors are consistently present, and thereby lessens the chance consumers will be influenced by temporary considerations that could have unpleasant long-term consequences.

Finally, consumers should evaluate the portfolios they currently own to be sure that they are consistent with their goals. If they are not, then an unconscious bias toward the status quo may cause them to choose new investments that are inconsistent with their goals.

References
Aaker, Jennifer L. and Angela Y. Lee (2001), “‘I’ Seek Pleasures and ‘We’ Avoid Pain: The Role of Self-Regulatory Goals in Information Processing and Persuasion,” Journal of Consumer Research, 28 (June), 33-49.

Chernev, Alexander (2004), “Goal Orientation and Consumer Preference for the Status Quo,” Journal of Consumer Research, 31 (December), 557-565.

Mandel, Naomi (2003), “Shifting Selves and Decision Making: The Effects of Self-Construal Priming on Consumer Risk Taking,” Journal of Consumer Research, 29 (June), 30-40.

Zhou, Rongrong and Michel Pham (2004), “Financial Self-Regulation Across Mental Accounts: Implications for Consumer Investment Decisions,” Journal of Consumer Research, 31 (June), 125-35.