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The disposition effect in team investment decisions: Experimental evidence

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  • Rau, Holger A.

Abstract

This paper experimentally studies the disposition effects of teams and individuals. The disposition effect describes the phenomenon that investors are reluctant to realize losses, whereas winners are sold too early. Our experiments compare the investments of two-person teams to a setting where investors trade alone. We find that subjects investing jointly exhibit more pronounced disposition effects than individuals. A closer look reveals that investor teams hardly realize losses and predominately sell winners. The data suggest that decision-dependent emotions may explain the differences. That is, teams reporting high levels of regret exhibit significantly higher disposition effects than individuals.

Suggested Citation

  • Rau, Holger A., 2015. "The disposition effect in team investment decisions: Experimental evidence," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 272-282.
  • Handle: RePEc:eee:jbfina:v:61:y:2015:i:c:p:272-282
    DOI: 10.1016/j.jbankfin.2015.09.015
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    Cited by:

    1. Vollmer, Elisabeth & Hermann, Daniel & Mußhoff, Oliver, 2017. "The disposition effect in farmers' selling behavior: An experimental investigation," DARE Discussion Papers 1701, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    2. Martin Fochmann & Johannes Hewig & Dirk Kiesewetter & Katharina Schüßler, 2017. "Affective reactions influence investment decisions: evidence from a laboratory experiment with taxation," Journal of Business Economics, Springer, vol. 87(6), pages 779-808, August.
    3. Hermann, Daniel & Mußhoff, Oliver & Rau, Holger A., 2017. "The disposition effect when deciding on behalf of others," Center for European, Governance and Economic Development Research Discussion Papers 332, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Decision-dependent emotions; Disposition effect; Experiment; Team decision making;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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