Do investors show an attentional bias toward past performance? An eye-tracking experiment on visual attention to mutual fund disclosures in simplified fund prospectuses

This study examines the cognitive processes underlying investors’ extrapolations of past fund performance and whether investors’ attention patterns may explain their return-chasing behaviors. We measured the attention that investors paid to mutual fund disclosures in a simplified fund prospectus using unobtrusive infrared eye tracking. Results suggest that prior fund performance, which is normatively irrelevant information and not useful in predicting future performance, received considerable attention from investors. More interestingly, the impact of prior fund performance on investors’ purchasing intentions was fully mediated through expected returns and attention paid to past performance information. The results indicate that investors apparently believe in performance persistence or in a ‘hot hand’ effect, and that mutual fund purchases are driven by salient information such as superior performance. Moreover, we tested the disclaimer mandated by regulatory bodies, which warns that past performance does not guarantee future results. We found that the disclaimer was ineffective in reducing investors’ extrapolation biases, despite the fact that the disclaimer was attended to and properly encoded by investors.     

Quantifying the CO2 Permit Price Sensitivity

Equilibrium models have been widely used in the literature with the aim of showing theoretical properties of emissions trading schemes. This paper applies equilibrium models to empirically study permit prices and to quantify the permit price sensitivity. In particular, we demonstrate that emission trading schemes both with and without banking are inherently prone to price jumps.     

Dynamic Adjustment of Eco‐labeling Schemes and Consumer Choice – the Revision of the EU Energy Label as a Missed Opportunity?

Products with a superior environmental performance, such as a high level of energy efficiency, are typically subject to information asymmetries. Therefore these product attributes are often undervalued in purchase decisions. Signaling, e.g. energy labeling, can overcome these asymmetries, with positive implications for effective consumer decisions, competitive advantage for suppliers of energy‐efficient goods, and for societal goals such as mitigating climate change. However, there is a scarcity of research investigating how energy labels actually influence consumer choice. The recent revision of the European Union energy label provided a unique opportunity to investigate the effectiveness of energy labeling in a quasi field‐experimental setting. We show that the proposed extension of the seven‐point A–G rating scale by adding new classes A+, A++, etc. will result in a lower perceived importance of energy efficiency in consumer decision‐making. Based on a stated preference survey investigating 2244 choices by German consumers, we conclude that the revision actually undermines the label's ability to overcome information asymmetries, hence potentially contributing to market failure. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.