Multi-criteria Decision Support for Investment Decisions: Examining the Interactive Effects of Risk Profile, Information Horizon, and Prospect Format

Using a psychological approach toward designing a Multi-Criteria Decision Support Systems (MCDSS), three prominent design features -- risk profile, information horizon, and prospect format -- are embedded in a MCDSS to help users overcome a tendency to build overly conservative investment portfolios. Consistent with myopic loss aversion theory, users exhibit a decreased willingness to take calculated risks when a MCDSS presents risk profiles with more variation and larger probabilities and magnitudes of losses. Such risk profiles prove particularly problematic when extended information horizons (e.g., 10 years) prevail. Regardless of risk profile, a MCDSS can activate heuristic-based decision processes by presenting multi-trial prospects in a manner that overwhelms cognitive capacity. Implications for theory and practice are discussed.