The Impact of Self-Control on Investment Decisions

This paper explores how reduced self-control affects individual investment behavior in two laboratory tasks. For this purpose, I exogenously reduce subjects’ self-control using a well-established psychological treatment. In each task, I find no significant main treatment effect, but secondary effects consistent with findings on self-control from other studies and self-control’s potential relevance in financial markets. In experiment 1, I find no significant change in the disposition effect following the manipulation. However, treated participants trade fewer different shares per round. In experiment 2, I look at the effect of self-control on myopic loss aversion by implementing a 2×2 design by varying investment horizon and self-control in a repeated lottery environment. Average behavior suggests that reduced self-control increases framing effects, but I cannot reject the null hypothesis of equal investment levels between the self-control treatments within each investment frame. Analyzing the dynamics of decision making in more detail, self-control depleted participants in the narrow frame reduce their investment levels on average over time which seems to be driven by more intense reactions to investment experiences.