The main question on the survey asks which of 4 investments you’d be most comfortable with. Here is the exact wording:
“Investments with higher potential returns typically involve greater risk. The following chart shows four hypothetical investments of $10,000, each with a different potential best and worst outcome at the end of one year. Which investment would you be most comfortable with?”You are presented with 4 bar graphs giving ranges of possible portfolio returns going from safest to riskiest. Here were the ranges I was presented.
Portfolio A: 0 to $10,900
Portfolio B: -$9600 to $11,200
Portfolio C: -$8900 to $11,800
Portfolio D: -$8400 to $12,400
Just based on the numbers, it’s hard not to choose Portfolio A because its midpoint is more than double the midpoints of the other portfolios. So, even though I tend to be comfortable with volatility, I had to choose the least risky choice in this survey because it offered the highest expected return.
Another problem is that the bar graphs shown were hopelessly out of scale. For example, it shows the downside of Portfolio D as about 4 times bigger than the downside of Portfolio B, even though B actually has the greater potential for loss.
I suspect that the survey results will have some meaning for respondents who look only at the picture and ignore the numbers on it. However, crazy people like me who actually look at numbers will mess up the survey results.
This isn’t the end of the problems, though. When I went to look back at the survey again, I was presented with a different chart. After a few browser reloads, I saw that there appeared to be 5 different charts. Three of these charts had big mismatches between the numbers and the bar graph sizes. The other two were to scale, but still showed the safest investment as having the highest median return.
Overall, I seriously question whether this survey can produce any meaningful results about investor attitudes towards investment volatility.