New research from York University’s Schulich School of Business in collaboration with Boston University and the University of Basel, Switzerland, shows investors have a false sense of security when it comes to tangible assets such as gold and real estate or stocks linked to companies that make tangible products.
The findings are contained in the paper “Tangibility bias in investment risk judgments” published in the journal Organizational Behaviour and Human Decision Processes. The article was written by Theodore Noseworthy, professor of marketing and Canada Research Chair in Entrepreneurial Innovation and the Public Good at Schulich, together with three co-authors: Özgün Atasoy (University of Basel, principal investigator), Remi Trudel and Patrick Kaufmann (Boston University).
According to the researchers, there is a greater “perceived permanence” of tangible versus intangible assets – and this so-called perceived permanence affects market risk assessment and can also lead to an overblown sense of security. For example, the researchers note that when investors are focused on avoiding risk, they indicate a higher willingness to sell the stocks of companies that invest in intangible assets rather than tangible assets.
“Tangibility signals low risk because it’s associated with a sense of permanence,” says Noseworthy. “And yet investments in real estate – about as tangible as it gets – can be extremely volatile.
“Risk perception is an integral part of financial decision-making. A practical implication of our research is that companies may benefit from seeking ways to associate themselves with tangibility to reduce investors’ perception of risk.”
Impressions that a company is durable or lasting, or that it owns assets that are durable or lasting, may induce trust in investors, he says.
“The nascent markets for non-fungible tokens, crypto currencies and digital artwork present an interesting consideration in the context of our research findings. Indeed, some of our preliminary evidence revealed that consumers would perceive bitcoin as a less volatile asset if it had an actual physical coin to correspond with the virtual wallet, even if such a coin was little more than a plastic trinket,” says Noseworthy.