1. Are we building portfolios for investors or for fund managers? Behavioural Finance Implications in Superannuation Investing. University of New South Wales John Livanas

2. Central Concept 100,000 Super Investors 4,000 Investment Switches 202 First Time Investment Switches 236 Survey Data Assess impact of first time choice Assess correlation of investment decisions with age, gender, market Establish Utility

3. Standardised Risk Return Concepts Consistent Method of assigning values to ‘Riskiness’ for quantitative analysis Portfolio NamesTypical Assets held Relative Risk ‘Value’ ‘High Growth’85-90% Equities, Property1 ‘Trustee Selection’75% - 85% Equities, Property0 ‘Diversified’65-70% Equities, Property ‘Balanced’ 45-55% Equities, Property, with the remainder in Bonds, Cash -2 ‘Capital Guarded’ <15% Equities, Property, with the remainder in Bonds, Cash -3 ‘Cash’ Largely Cash with possibly some short-dated Bonds -4

4. Risk Shifts and Market (after notional carry-costs) Period Ave. Risk Shift Ave. Money Weighted Risk Shift Pre 1/3/20051.869$37,763 Post 1/3/20051.922$64,693 Investors seem to take the lead from the market – believing that the market trend itself provides information

5. Correlation of First-Time Risk Shifts and Age Events seem to trigger ‘Rational’ Behaviour

6. Utility Curves for Return

7. Utility Curves for Risk

8. Utility Curves for Time Horizon

9. Quantifying the utilities E(R)pE(R)E(Z)pE(Z)E(T)pE(H) 3.9%-1.352no chance1.4251 year-0.008 6.0 - 6.3%0.12113% chance0.2953 year0.009 6.5 - 7.2%0.08320% chance-0.1535 year0.177 7.2 - 8.1%0.37525% chance-0.47910 year-0.178 8.0 - 9.0%0.77433% chance-1.087 Consequently, for the state s=1, for all C’s =1, (5) solves as: 0.375-1.087-0,008 = -1.013

10. Adding the Partial Utilities Partial Utilities of Risk 1.4250.295-0.153-0.479-1.087 013%20%25%33% Partial Utilities of Return -1.3523.90%0.07-1.06-1.51-1.83-2.44 0.1216.15%1.550.42-0.03-0.36-0.97 0.0836.85%1.510.38-0.07-0.40 0.3757.65%1.800.670.22-0.10-0.71 0.7748.50%2.201.070.620.29-0.31

11. Risk Return isoutilities

12. Risk Return Isoutilities as a plane