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Abstract

When investment is repeated, previous outcomes (winning/losing) as well as the current budget level (gain/loss domain) influence decisions. The first is related to the so-called "gamblers fallacy". The second to value function relative to some reference point. Both effects have been extensively studied, however not their interaction. We present a meta-study of five experiments initially conducted to investigate myopic-lossaversion. We observe that investment is related to the number of previous winning rounds as well as to the current budget position relative to a reference point. These effects persist when the analysis is extended to settings with restricted flexibility concerning investment.

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Bibliographic Info

Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 09-087.

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Date of creation: 30 Sep 2009
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Handle: RePEc:tse:wpaper:22194

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Related research

Keywords: reference point; gamblers fallacy; meta study;

Find related papers by JEL classification:

• C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
• D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
• G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

This paper has been announced in the following NEP Reports:

• NEP-ALL-2010-05-22 (All new papers)
• NEP-CBE-2010-05-22 (Cognitive & Behavioural Economics)
• NEP-EXP-2010-05-22 (Experimental Economics)

References

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Cited by:

1. Hopfensitz, Astrid & Wranik, Tanja, 2009. "How to Adapt to Changing Markets: Experience and Personality in a Repeated Investment Game," TSE Working Papers 09-122, Toulouse School of Economics (TSE).
   
   • Hopfensitz, Astrid & Wranik, Tanja, 2009. "How to adapt to changing markets: experience and personality in a repeated investment game," MPRA Paper 17835, University Library of Munich, Germany.

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