Method experience-based fact box with a goal

Chances of financial investements – Which forms of investment do you mix to reach your investment goal?

Challenges in risk communication

Communicating uncertain events to consumers

Why is it relevant to communicate uncertain events to consumers?

The aim is for the consumer to be able to make (better) decisions. They need to know precise facts and figures - the so-called evidence - in order to weigh options against each other and better assess risks. In addition, the presentation of the exact case numbers helps the user not to underestimate or overestimate certain risks and to make informed decisions based on them.

Why is it problematic to communicate uncertain events to consumers?

If you want to communicate risks, you face a number of challenges:

  • How can probabilities of occurrence be conveyed in general?
  • How can very rare events be communicated in such a way that they are also recognised as rare?
  • How can options for action be compared by considering potential harms and benefits?
  • And how can the risks be presented in an appealing way so that consumers also enjoy engaging with them?
What is a suitable scientific approach?

The method of the experience-based fact box can be used for risk problems, i.e. when reliable numbers are available about how often certain events occur. The fact box is supposed to give consumers an understanding of the probability of occurrence of certain events and give them options for action.

Learning from experience leads to different decisions regarding risks than learning from descriptions. It is crucial that experience-based learning, in which one learns what the consequences are for all options, can lead to better probability estimates. Fact boxes are an evaluated format of risk communication that presents decision options in a transparent, balanced and understandable way.

The dynamic visualisation of information should encourage consumers to learn for themselves and combine information with entertainment. For illustration and better understanding, an easy introduction, an accompanying explanatory text and a consistent narrative - a positioning in the life situation of the potential user - are important.

Proof of effectiveness

In our studies, visualisations with experience-based learning proved to be at least as successful in conveying the probabilities of several events as the best static figures to date. In addition, experience-based learning led to a longer engagement with the material.

Recommended literature on methodological basics
  • Bradbury, M. A., Hens, T., & Zeisberger, S. (2014). Improving investment decisions with simulated experience. Review of Finance, 19(3), 1019–1052.
  • Garcia-Retamero, R., & Galesic, M. (2010). Who proficts from visual aids: Overcoming challenges in people’s understanding of risks. Social Science & Medicine, 70(7), 1019–1025.
  • Hasher, L., & Zacks, R. T. (1979). Automatic and effortful processes in memory. Journal of Experimental Psychology: General, 108(3), 356–388.
  • Hau, R., Pleskac, T. J., Kiefer, J., & Hertwig, R. (2008). The description–experience gap in risky choice: The role of sample size and experienced probabilities. Journal of Behavioral Decision Making, 21(5), 493–518.
  • Hertwig, R., & Erev, I. (2009). The description–experience gap in risky choice. Trends in Cognitive Sciences, 13(12), 517–523.
  • Kaufmann, C., Weber, M., & Haisley, E. (2013). The role of experience sampling and graphical displays on one’s investment risk appetite. Management science, 59(2), 323–340.
  • McDowell, M., Gigerenzer, G., Wegwarth, O., & Rebitschek, F. G. (2019). Effect of tabular and icon fact box formats on comprehension of benefits and harms of prostate cancer screening: A randomized trial. Medical Decision Making, 39(1), 41–56.
  • McDowell, M., Rebitschek, F. G., Gigerenzer, G., & Wegwarth, O. (2016). A simple tool for communicating the benefits and harms of health interventions: A guide for creating a fact box. MDM Policy & Practice, 1(1), 2381468316665365.
  • Schwartz, L. M., Woloshin, S., & Welch, H. G. (2009). Using a drug facts box to communicate drug benefits and harms: Two randomized trials. Annals of Internal Medicine, 150(8), 516–527.
  • Ungemach, C., Chater, N., & Stewart, N. (2009). Are probabilities overweighted or underweighted when rare outcomes are experienced (rarely)? Psychological Science, 20(4), 473–479.
  • Wulff, D. U., Mergenthaler-Canseco, M., & Hertwig, R. (2018). A meta-analytic review of two modes of learning and the description–experience gap. Psychological Bulletin, 144(2), 140–176.
     
How can you implement the method?

Option 1: You can embed the given visualisation
It is possible to embed the visualisation from our website including the frame text via iframe. To do this, use the following html-code for your website:  <iframe frameborder="0" height="650px" src="https://static.risikoatlas.de/visualisations/sampling-riot/sampling.html" width="1024px"></iframe>

Option 2: You can adapt the given visualisation
If you use your own data as a multiplier, your web developers can enter it into your own consumer fact box with experience-based learning.

We will provide the person responsible for your website with the documented code for download via github. You can then edit the material. The link to the repository is available on request. Contact details can be found here.

Option 3: You can apply the scientific principle independently
If you require assistance, please consult the final report on the RiskAtlas project from July 2020 or contact us. Contact details can be found here.

When using the instruments, please mention the funding agency, which is the German Federal Ministry of Justice and Consumer Protection, and the Harding Centre for Risk Literacy as the responsible developers.

Logos can be downladed here.

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Visualisation with frame text

Chances of financial investments – Which forms of investment do you mix for your returns goal?

Savings accounts are currently yielding hardly any profits. Although the money is well-deposited in these accounts, over the years it has become de facto less and less valuable due to inflation and the low-interest period. Therefore, it is worth considering whether one should invest part of the money in forms of investment that yield higher returns. But higher returns also mean higher risks.

Developments in the past are never a predictor for the future. This is particularly true for financial investments. However, with a quick look into our fact box you can get an impression of which investment forms usually yield more returns than others, and which ones may be less risky but also less profitable. Do you have a certain goal you would like to achieve with a certain investment amount over a fixed term? Then click through our fact box and find out to what extent your investment goal can realistically be achieved.

What does the chart show?

The fact box shows you how returns have developed over fixed periods of time in the past. It allows you to get an idea of return payments of individual investment forms when investing a certain amount of money over a fixed term. You can define an investment target (e.g. 2000 euros) which you would like to achieve with a one-off investment (e.g. 1000 euros) over a fixed term (e.g. 10 years). For example, you can "invest" 100% of your investment amount in the German DAX in the left box. In the right box you could also fictitiously invest the investment amount in gold and compare with which investment form you are more likely to achieve your investment goal set at the beginning.
You can always draw a comparison between two of the six investment forms offered (DE Dax shares, DE general shares, gold UK, time deposits, federal bonds and USA S&P shares). Mixed investments are also possible, e.g. if you do not want to "invest" 100% of your money in the Dax, but only 50% of your sum and the other half, for example, in fixed-term deposits.  

The goal amounts achieved have already been adjusted for inflation, but taxes have not yet been taken into account. With every click on the bar "How many reach the goal?" the profit or loss of another investor is added. You could add further fictional investors individually (click on "individual") or in groups of 10 investors (click on "in groups of 10").
The fact box should give you an impression of the relationship between risk and return, and which investment forms are riskier than others. Please note that developments in the past, especially in the financial sector, are no predictor for future developments.

Sources and quality of the data

Where are the numbers coming from?

The data on which the fact box is based originate from the corresponding periods of the available financial history (maximum monthly entry date between 1 January 1950 and 31 March 2009). The following trends in performance were taken into account:

  • Stock funds: Net performance of the stock index MSCI World (after withholding taxes) in Euro.
  • ETF (DAX): Performance of the DAX
  • ETF (Pension Index): Development of the German Pension Index (REX)
  • ETF (US stocks): Performance of the S&P 500 Index
  • Time deposit: Deutsche Bundesbank: "Sparbriefe mit laufenden Zinszahlung, vierjährige Laufzeit, Durchschnittsatz" (until 2002), "Banken DE, Neugeschäft, Einlagen privater Haushalte, vereinbartte Laufzeit von über 2 Jahre
  • Gold: Development of the London Market Price
  • Corporate bonds: Bond development

If different investment forms are mixed, the fact that this mix changes over time due to the different increases in value of the investment forms must be taken into account.

The costs for the individual investment forms were calculated as follows:

  • Stock funds: 0,5% p.a.
  • ETFs: 0,5% p.a.
  • Time deposit: 0,05% p.a.
  • Gold: 0,5% p.a.
  • Corporate bonds: 0,5% p.a.

The data were obtained from the following sources:  Allfinancialmatters.com, Deutsches Aktieninstitut e.V., Deutsche Bundesbank, Measuringworth.com, Prof. Richard Stehle (Humboldt-Universität zu Berlin).

What is the quality of the data?

The fact box "Comparing investment forms" shows returns from the past.
The calculation is based on the monthly closing rates of the respective years. In relation to the past, the quality of the data on actual trends is high. However, developments from the past are never a predictor for the future. For more information on the methodology, please refer to the information symbol in the top right-hand corner.

The RisikoAtlas project, the Harding Center for Risk Literacy, the Max Planck Institute for Human Development and the sponsors of the research project do not make any direct or indirect recommendations for certain forms of investment. The RisikoAtlas project, the Harding Center for Risk Literacy, the Max Planck Institute for Human Development and the sponsors of the research project are not liable for any damages resulting from the purchase or sale of investment products based on this document. If an organisation uses the fact box "Comparing investment forms" for its purposes or makes it available to consumers, it is fully responsible for compliance with the applicable regulations.

Empirical evaluation with consumers

All research results on the fundamentals and on the effectiveness of the RiskoAtlas tools in terms of competence enhancement, information search and risk communication will be published together with the project research report on 30 June 2020. If you are interested beforehand, please contact us directly (Felix Rebitschek, rebitschek@mpib-berlin.mpg.de).

Last update: 27 November 2019.

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