Can graphical displays really improve the communication of financial risk information?

Zhang, Danni, Dawson, Ian, Sung, Ming-Chien and Ma, Tiejun (2021) Can graphical displays really improve the communication of financial risk information? The 29th Annual Conference of the Society for Risk Analysis - Europe, Espoo, Finland., Aalto University, Espoo, Finland. 14 - 16 Jun 2021.

Abstract

Insufficient understanding of financial risks can cause individuals to make poor financial decisions, and this can have substantial deleterious effects on their wealth, health and psychological well-being. Therefore, it is crucial to promote better engagement and comprehension of risk-related financial information.

While evidence shows that numerical information processing and comprehension are significantly influenced by presentation formats (e.g., graphical vs. textual formats), there is mixed evidence on the efficacy of the different formats. For example, some, but not all research shows that lay individuals who view textual-based formats develop a better comprehension of financial risk information than individuals who view graphical formats. However, none of the extant studies have explored why an individual’s comprehension of financial information might be hindered by graphical presentations or how such formats could be better designed to improve comprehension.

To address this knowledge gap, 40 participants were asked to process financial information presented using two types of graphical displays (i.e., risk of financial loss from stocks presented using icon arrays; mortgage repayment risks presented using text and bar charts). Think-aloud and think-after methods were employed to collect data on the participants’ levels of comprehension, cognitive processes, and judgments. Verbal protocol analysis revealed that graphical formats were more useful to communicate gist information (general risk impression) than the verbatim information (precise risk information). That is, graphical formats more effectively helped participants to make comparisons between different pieces of financial data and to quickly identify key information. However, in terms of generating deeper insights into financial risk, the results showed that more effortful graph interpretation was required by the participants and that this was most effective when supported by written text. Furthermore, our participants emphasized that textual information was their preferred format for receiving financial risk information. Participants reasoned that textual formats provided more precise information and were easier to interpret, and that the integrations and interpretations that were required to understand the graphical formats increased the likelihood of making errors. Moreover, our study found that although arresting colours appeared helpful in the information identification process, they also elicited disproportionate attentional weighting and emotional reactions. That is, red bars (cf. green bars) were viewed as a warning signal and this led to heightened concerns about risk. Similarly, black icons (cf. grey icons) increased the salience of financial losses, which then contributed to heightened risk awareness. These findings can be utilised to improve financial risk communications.

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Contributors

Author: Danni Zhang

Author: Ian Dawson

Author: Ming-Chien Sung

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