An Experimental Economic Study of Loss Aversion in Stock Trading Decisions

The disposition effect is a form of behavioral bias that tends to result in investors holding on to their losing stocks for too long and selling winning stocks too soon. It can be explained by the behavioral economics theory of loss aversion. Even though many have studied this kind of behavioral bias in a variety of different countries, none of them have investigated the disposition effect in the case of Thailand. Therefore, the main objective of our study is to test the disposition effect among Thais by applying the experimental economic approaches of Weber & Camerer (1998) and Odean (1998) whilst also including the findings from questionnaires and interviews. We set up a simulation stock trading market to test the disposition effect of participants regardless of whether they had stock trading experienced or not. Subjects were required to trade among six stocks in 14 trading periods. We also added three more periods to test how different types of news impacted the subjects’ trading decisions. In addition, we analyzed socioeconomic factors that affect disposition effect behavior by using an econometric binary choice model. We found that this experiment can exhibit the disposition effect of subjects in terms of overall and individual measurement. In normal stock trading situations, we found that over 70% of subjects showed clear signs of the disposition effect, which seemed to decrease after they received fictional news.

When Linda meets Preeti: The Validation of Behavioral Biases in India

This paper presents results from an experiment testing 10 of the core biases from the behavioral economics literature amongst two distinct ‘non-WEIRD’ (Western Educated Industrialized Rich and Democratic) population groups: low-income Indians, and university students from an elite Indian university. The study tests for both the existence of the ‘behavioral bias’ for each measure with our ‘non-WEIRD’ sample and tests for heterogeneity across the socioeconomically distinct sub-samples. We find that both sub-samples display significant 'bias' in the majority of tests and across different categories of bias, suggesting that behavioral biases are not peculiar to Western samples. We further find that the patterns of bias are the same for each sub-sample for most measures, but that there are notable exceptions for a small subset of measures. In most of these cases, the student sample, closer to typical samples for this type of research, shows stronger bias than the low-income sample.

Indonesian Stock’s Influencer Phenomenon: Did Financial Literacy on Millennial Age Reduce Herding Behavior?

In Indonesia's capital market, there was a phenomenon that famous influencers seem to lead to behavioral bias in the stock market. The stock price changed significantly after those stock influencers shared information or recommended certain stocks. This research examined how the stock influencer's credibility affected investors' investment in recommended stock. We collected data from 132 individual investors who participated in the research. We used a questionnaire with a 5-Likert scale. The result showed that an influencer's credibility had a significant influence on investors' herding behavior. However, there was no significant evidence that financial literacy matters in that relationship. Interestingly, we found there was no significant difference in herding behavior between millennial and non-millennial investors.

Aversive stimuli bias corticothalamic responses to motivationally significant cues

Making predictions about future rewards or punishments is fundamental to adaptive behavior. These processes are influenced by prior experience. For example, prior exposure to aversive stimuli or stressors changes behavioral responses to negative- and positive-value predictive cues. Here, we demonstrate a role for medial prefrontal cortex (mPFC) neurons projecting to the paraventricular nucleus of the thalamus (PVT; mPFC→PVT) in this process. We found that a history of aversive stimuli negatively biased behavioral responses to motivationally relevant cues in mice and that this negative bias was associated with hyperactivity in mPFC→PVT neurons during exposure to those cues. Furthermore, artificially mimicking this hyperactive response with selective optogenetic excitation of the same pathway recapitulated the negative behavioral bias induced by aversive stimuli, whereas optogenetic inactivation of mPFC→PVT neurons prevented the development of the negative bias. Together, our results highlight how information flow within the mPFC→PVT circuit is critical for making predictions about motivationally-relevant outcomes as a function of prior experience.

Education, taxation and the perceived effects of sin good consumption

In a setting in which an agent has a behavioral bias that causes an underestimation or an overestimation of the health consequences of sin goods consumption, the paper studies how a social planner can affect the demand of such goods through education and taxation. When only optimistic consumers are present, depending on the elasticity of demand of the sin good with respect to taxation, the two instruments can be substitutes or complements. When consumers are heterogeneous, the correcting effect that taxation has on optimistic consumers has unintended distorting effects on both pessimistic and rational ones. In this framework, educational measures, by aligning biased consumers’ perceptions closer to the true probability of health damages, are more effective than taxation.

Evaluating The Connection of Behavioral Biases and Investment Decisions of Equity Market Investors Using SEM Approach

Objective: The key objective of the paper is to study the magnitude of the disparity in actions between stock holders for short-term and long-term. Methods: Investor traits and how the judgement on investments and behavioral bias are interconnected are contrasted by using a systemic model, as well as to compare relative behavioral bias variations including Framing Bias, Endowment Bias, Representative Bias, Cognitive Dissonance Bias, Self-Control Bias and Overconfidence Bias. Distinguishing evidence of behavioral characteristics that are normally related to investment venture helps to provide assessments and confine trading techniques. Results: Between July 2020 and August 2020, the cognitive effect of investor decision-making is contrasted via test review of 300 substantive responders from deliberate Indian stock market investors. Taking into account the structural equation modelling (SEM), a route study is carried out of the manner in which stock investment and proposed behavioral inclinations are concomitant. Conclusions: Observational outcomes suggest that the systemic path model deliberately correlates with the survey content, demonstrating the influence of behavioral discrimination in decision-making for individual investments. Our results also indicate that short-term and long-term investors’ behavioral patterns vary substantially.

Microfoundations of Discounting

An important question in economics is how people choose between different payments in the future. The classical normative model predicts that a decision maker discounts a later payment relative to an earlier one by an exponential function of the time between them. Descriptive models use nonexponential functions to fit observed behavioral phenomena, such as preference reversal. Here we propose a model of discounting, consistent with standard axioms of choice, in which decision makers maximize the growth rate of their wealth. Four specifications of the model produce four forms of discounting—no discounting, exponential discounting, hyperbolic discounting, and a hybrid of exponential and hyperbolic discounting—two of which predict preference reversal. Our model requires no assumption of behavioral bias or payment risk.

Evaluating Conscious Consumption: A Discussion of a Survey Development Process

This paper is the outcome of a course project for Economics of Sustainability (Northeastern University, Boston, Massachusetts). Facilitated and under the direction of the instructor, course participants designed a survey instrument where questions and responses were developed to be indicators of behavioral bias related to the environment. The consumer good targeted in the survey was convenience-based coffee consumption, and convenience was defined by the use of single-use disposable coffee cups. The discussion highlights the survey development process including literature review-based expectations specific to each question. The paper concludes with next steps, which involve the administration of the instrument and evaluation of the survey results.

Studi Perilaku Investor dan Myopic Loss Aversian

An experienced investor's mindset tends to be different from that of a novice investor who has certain considerations heavily influenced by feelings and emotions. This mindset has unwittingly led to behavioral bias. One behavioral bias that often arises without being realized by investors, especially novice investors, is Myopic Loss Aversion (MLA). This study aimed to confirm the existence of Myopic Loss Aversion (MLA) behavioral bias and to analyze Myopic Loss Aversion (MLA) behavior bias inactive investors in Malang as well as the factors causing the emergence of Myopic Loss Aversion (MLA) behavior bias. This research was qualitative case study research. Primary data was obtained through in-depth interviews with selected informants. The results found that Myopic Loss Aversion arises in investors who conduct portfolio evaluations more frequently by monitoring fluctuating stock chart movements that seem to fear that their portfolio would suffer losses. Furthermore, another discovery was about how investors who had experienced Myopic Loss Aversion bias could overcome past mistakes in the investment decision-making process.Keywords: Financial Behavior, Investors, Investment Decision Making AbstrakPola pikir investor yang sudah berpengalaman bisa berbeda dengan investor pemula yang cenderung masih memiliki pertimbangan tertentu yang banyak dipengaruhi oleh perasaan dan emosi. Pola pikir ini tanpa disadari telah memunculkan bias keperilakuan. Salah satu bias keperilakuan yang sering muncul tanpa disadari oleh investor terutama investor pemula yaitu Myopic Loss Aversian (MLA). Penelitian ini bertujuan untuk mengkonfirmasi eksistensi dari bias keperilakuan Myopic Loss Aversian (MLA) dan menganalisis bias perilaku Myopic Loss Aversian (MLA) pada investor aktif di Malang serta faktor penyebab munculnya bias perilaku Myopic Loss Aversian (MLA). Penelitian ini merupakan penelitian kualitatif studi kasus. Data primer dilakukan melalui wawancara mendalam terhadap informan terpilih. Hasil penelitian ini ditemukan bahwa Myopic Loss Aversian muncul pada investor yang melakukan evaluasi portofolio secara lebih frekuen melaui pemantauan pergerakan grafik harga saham fluktuatif yang seakan-akan takut portofolionya mengalami kerugian. Lebih lanjut, juga ditemukan tentang bagaimana para investor yang pernah mengalami bias Myopic Loss Aversian mengatasi kesalahan-kesalahan dimasa lalu dalam proses pengambilan keputusan investasi.Kata Kunci: Perilaku Keuangan, Investor, Pengambilan Keputusan Investasi