The Interplay of Hope and Fear on Investment Choices

We examine how heterogeneity among investors' goals, personality, and motivations affect their current portfolio allocation and future portfolio plans. We asked 1347 investors from a national US sample the extent to which they agreed with 28 statements that reflected their investment strategy (adapted from Hoffmann and Shefrin, 2011; e.g., "My investment decisions are driven by hope for a positive outcome"), susceptibility to normative influence (Bearden et al., 1989), risk attitude and confidence (Wood and Zaichowsky, 2004). We used cluster analysis to categorize investors into different groups, leading to the emergence of four types of investors: The Hopeful, the Fearful, the Experts, and the Socially Conscious. These four categories of investors differ in terms of
their current portfolio allocation (ranging from checking accounts, and mutual funds to commodities and ETFs). They have very different motivations to invest. For example, the "fearful" investor has the highest economic motivation to invest (e.g., "I want to safeguard my retirement," Hoffmann 2007), and the "hopeful" investor has the lowest psychological motivation to invest (e.g., "It makes me feel smart," Chandon et al. 1990). The investor segments also vary in terms of the importance associated with investment features such as fees versus volatility of returns. These preferences are strongly related to stable personality constructs such as investors' overall optimism and pessimism (Schreier et al., 1994), as well as their promotion and prevention focus (Carver & White, 1994).