ASIC financial adviser exam, Consumer behaviour and decision making question: losses and to product disclosure shows

ASIC examConsumer behaviour and decision making

Research on how consumers respond to losses and to product disclosure shows that … (i) people generally feel the pain of a loss more strongly than the pleasure of an equal gain. (ii) the more product disclosure consumers receive, the better their decisions tend to be.

A (i) True, (ii) True
B (i) True, (ii) False
C (i) False, (ii) True
D (i) False, (ii) False

Show the answer and explanation

Answer: B. (i) True, (ii) False

Statement (i) is true: loss aversion is a central finding of prospect theory (Kahneman 2012, on ASIC's Exam preparation guidance v6.0 reading list). Statement (ii) is false: ASIC and the AFM's REP 632 (Oct 2019) found that disclosure is often ineffective and can backfire, and choice overload research shows more information can lead to worse or avoided decisions.

Common mistake

More disclosure is not a reliable fix: ASIC's own research shows it can make decisions worse.

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