Researchers at the University of Münster in Germany have shown that people can be highly influenced in selecting financial assets simply by the way the risks are charted. Their study, published in the June 2009 issue of Decision Analysis, showed that people are significantly more likely to select data charted in one way versus the same data charted in a different way. They also showed that people who self-describe themselves as “risk averse” (as most people do) will prefer one type of data presentation over another type.

In particular, two types of commonly used data distribution curves were discussed: probability density functions (skewed bell curves) and cumulative distribution functions (S-type or logistic curves):

In multiple experiments involving subjects selecting financial asset models using data with “right skewness” in probability density plots, people were significantly more likely to select the model if it was instead displayed as a cumulative distribution function (S-type curve). For financial asset models data with “left skewness,” the opposite was true; people were more likely to select it if the model was presented as a probability density plot (left-skewed bell curve). Furthermore, the researchers found that “Individuals that judge themselves as more risk averse show a stronger preference for right skewness.”

The authors note that:

“The findings of this paper have several practical implications. First, in advertising their products a financial services firm may choose the presentation format that is most likely to induce specific preferences for the considered financial product. For example, the sales brochure of a mutual fund investing exclusively in growth firms may use a presentation format that induces a preference for right skewness. Similarly, a firm advertising a discount certificate, a financial instrument that implements a covered call strategy and thereby generates a left-skewed distribution, may use a density function to communicate the asset’s risk.”

What are the implications of this if you’re not an advertiser trying to pitch financial services to potential customers?

Well, if you do any kind of business analysis presentations, like project portfolio management analyses, you’ll want to remember that the chart types that you select for your data can strongly influence your audience based on their unconscious preferences.

And if you’re looking at charts in order to make a decision based on the data, be sure that you look at the data in different chart types so you don’t make your selection based on your own unconscious preferences.