104 / Rotman Management Spring 2017
a single new asset to his portfolio (the mutual fund); and
second, by focusing on marketing to investors, mutual funds
can make their product more familiar to them. In other
words, whereas corporations specialize in making profits,
mutual funds can specialize in being invested in.
Our approach suggests that there is a socially-valuable
complementarity between being good at marketing that as-
suages investor fears about stocks, and providing a diversi-
fied portfolio of securities in which individuals can invest.In closing
The evidence indicates that individuals favour geographi-
cally- and linguistically-proximate and more familiar in-
vestments; that they are biased in favour of staying at cur-
rent consumption/investment positions or strategies and
in favour of choice alternatives made salient as default op-
tions; and that they are averse even to small gambles when
presented as increments relative to an endowed certainty
position. More generally, individuals are more reluctant to
take actions that impose risk than to bear risk associated
with remaining passive; tend to like stimuli they have al-
ready been exposed to; and tend to like people they are lo-
cated close to.
As indicated herein, emotions of fear and suspicion are
often directed towards the unfamiliar, and this phenomenon
explains several biases in individual psychology as well as in
economic and financial decisions.Bing Han is a Professor of Finance at the Rotman School of Manage-
ment. This article summarizes his paper, “Fear of the Unknown:
Familiarity and Economic Decisions”, co-authored with H. Henry
Cao, David Hirshleifer and Harold Zhang. The complete paper,
published by the Review of Finance, can be downloaded online.Rotman faculty research is ranked #3 globally by the Financial Times.Celebrating 15 years
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