The demand for structured products: an experimental approach

Abstract

Guaranteed investment funds are showing an important growth in the mutual fund industry. We analyze this type of fund’s demand using the experimental methodology. Different types of structured guaranteed funds, with certain combinations of secured and additional benefits, are sequentially offered to university students who act as investors. Subjects also have the possibility to buy bonds. Our results show that information available to investors, and particularly the order in which it is presented, generates significant biases in their decision making which can have both positive and negative effects on their financial behavior. In fact, when the investment alternatives are made easier to compare, “too good to be true” investment offers get more easily spotted, while “guaranteed” investment products with a positive evolution result overvalued in comparison to bonds.