The disposition effect (DE) is a common bias by which investors tend to sell profitable assets too soon and hold losing assets too long. We investigate psychological correlates of the DE in a standard experimental environment and find that subjects scoring high in optimism and stubbornness (difficulty recognizing one’s errors) tend to sell fewer losers and consequently exhibit a larger DE. We then test a beliefs-based explanation for these findings by conducting two additional treatments, called allocate (A) and choose (CH), in which we elicit price expectations after subjects are either randomly allocated assets, or forced to choose some, respectively. We find that subjects’ beliefs are more optimistic about assets that they own than about other assets, regardless of the treatment. However, while beliefs about owned assets in A adjust in line with Bayesian inference, beliefs remain stubbornly optimistic in CH even when an asset is more likely to be a loser.

Optimistic and stubborn: An experimental analysis of the disposition effect / Cueva, Carlos; Iturbe-Ormaetxe, Iñigo; Ponti, Giovanni Benedetto; Tomás, Josefa. - 2017/07:(2017). [10.12842/WPAD-2017-07]

Optimistic and stubborn: An experimental analysis of the disposition effect

Giovanni Ponti;
2017

Abstract

The disposition effect (DE) is a common bias by which investors tend to sell profitable assets too soon and hold losing assets too long. We investigate psychological correlates of the DE in a standard experimental environment and find that subjects scoring high in optimism and stubbornness (difficulty recognizing one’s errors) tend to sell fewer losers and consequently exhibit a larger DE. We then test a beliefs-based explanation for these findings by conducting two additional treatments, called allocate (A) and choose (CH), in which we elicit price expectations after subjects are either randomly allocated assets, or forced to choose some, respectively. We find that subjects’ beliefs are more optimistic about assets that they own than about other assets, regardless of the treatment. However, while beliefs about owned assets in A adjust in line with Bayesian inference, beliefs remain stubbornly optimistic in CH even when an asset is more likely to be a loser.
Behavioral Finance, Trading, Biases, Psychological Measures, Beliefs, Cognitive Dissonance.
Optimistic and stubborn: An experimental analysis of the disposition effect / Cueva, Carlos; Iturbe-Ormaetxe, Iñigo; Ponti, Giovanni Benedetto; Tomás, Josefa. - 2017/07:(2017). [10.12842/WPAD-2017-07]
File in questo prodotto:
File Dimensione Formato  
wpasad-2017-07.pdf

Open Access

Descrizione: Articolo pubblicato (online)
Tipologia: Versione dell'editore
Licenza: Creative commons
Dimensione 877.44 kB
Formato Adobe PDF
877.44 kB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

Caricamento pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/182490
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact