The bias of UK investors that could lead to lower returns

by Schroders | Oct 08, 2019
A major new test has found UK investors are most likely to suffer from ambiguity aversion, a bias that could potentially mean them taking fewer investment risks.

Whether we realise it or not, as investors we all have behavioural biases that can affect our investment decisions. By understanding these traits, we might be able to improve our outcomes.

More than 23,000 people in the UK have now taken the Schroders investIQ test, which was designed to help investors understand such behavioural biases.

The test found that UK investors on average have a bias towards ambiguity aversion.

Investors with ambiguity aversion tend to choose investments that will provide them with more of a known possible outcome over ones that are more uncertain. This could lead to investors taking less risk, which might lead to lower potential returns. However, taking on more risk is subject to greater losses.

The bias that investors in the UK are least likely to suffer from on average is the herd influence. This relates to the assumption that the herd collectively knows something we don’t. As a result we might irrationally follow others; ignoring the information we have, and what’s right for us as individuals.
 


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