The article Fun with Numbers: Disclosing Risk to Individual Investors by Cristian Weller discusses the topic of investors’ awareness of the risks associated with various investment opportunities and the challenges related to quantifying those risks. The author claims that information is key to making better investment decisions that is why it is important for the governments and financial institutions to provide more relevant, accessible and concise information. Unfortunately, in the majority of cases it is impossible to achieve all the three characteristics of information quality, therefore the decisions made based on imprecise information can be inferior to those made with the knowledge of “ perfect information” (Weller, 2011). Therefore, the goal of this article is to suggest several views to represent the data in a way that would give investors a more holistic perspective on the investment, thus facilitating more well-balanced decision-making and helping to enhance stability and transparency in the system.
The topic investigated by Cristian Weller is both interesting and highly significant in the current business environment. After the global economic turmoil of 2008-2009 people are no longer willing to risk their money as they used to do before the crisis. Therefore further investigation into the way to disclose information to the potential investors could be highly beneficial for influencing investors’ behaviour. The significance of the findings provided in the paper is supported by the reference to the current initiatives related to information disclosure. Thus Weller suggests that policymakers have already started to include disclosure into the legislative system, while financial service firms have already been studying risk and information disclosure in order to tailor their product offering to the particular segment (Weller, 2011).
However, there are several unclear points in the paper that could significantly improve the value of research once clarified. Thus, the author barely uses any numerical analysis to support the findings. In particular, some evidence to the claims regarding the insufficiency of information provided to investors could significantly enhance the validity of the idea. Moreover, the discussion of the proposed ways to present information does not provide a detailed comparison with the already existing methods of information disclosure, therefore it is hard to estimate the value added that the new method brings to information disclosure and risk management. Furthermore, the author merely discusses the benefits of the suggested system of information presentation; however no quantitative analysis to illustrate the effects of the new disclosure mechanism is presented. Thus, a small survey of investors regarding the impact of information disclosure and the comprehensiveness of the new disclosure scheme could provide solid facts to support the paper and to make it more credible.
In general, however, the conclusions presented by Cristian Weller can be quite valuable. Current situation in the market makes most people risk averse, while some try to increase the amount of risk in their investment portfolio in order to receive pre-crisis returns. Such imbalance is detrimental both for the system stability and for further economic development, therefore it is important to make sure that investors trust the transparency in the market and can easily understand the way the money is being used. In the long-run the fact that investors are fully informed about the situation in the market could have positive consequences on every aspect of lives. Thus, investors could accumulate wealth that would be sufficient to cover their retirement (in case the money is used for the pension plan). Moreover, the incentive and the possibility to push high-risk products in the market will be lower as all investors will be aware of the ramifications of high-risk investments. Hence, this will increase the overall financial system stability and lower the chance of another crisis. Thus, the author of the article has shown the area for further improvement and development, however extensive empirical studies are needed to prove that the new introduced methods of information disclosure actually have a positive impact on the risk management activities both on the institutional and individual levels.
Weller, C. E. (2011). Fun with numbers: Disclosing risk to individual investors. Journal of
Pension Benefits, 53-65.