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Projection bias by investors: A market approach

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  • Kliger, Doron
  • Levy, Ori

Abstract

Decision makers often fail to forecast their future feeling, erroneously projecting current preferences onto future preferences, an attribute recently labeled "projection bias" [Loewenstein, G., O'Donoghue, T., Rabin, M., 2003. Projection bias in predicting future utility. Quarterly Journal of Economics 118, 1209-1248]. There is sweeping psychological evidence for the existence of projection bias. Still, a scrutiny of projection bias based on real (rather than experimental) data is lacking. This paper devises and implements such a framework. Using US asset market data, our statistical findings unequivocally support the existence of projection bias in investors' decision-making processes.

Suggested Citation

  • Kliger, Doron & Levy, Ori, 2008. "Projection bias by investors: A market approach," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 657-668, June.
  • Handle: RePEc:eee:jeborg:v:66:y:2008:i:3-4:p:657-668
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    References listed on IDEAS

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    Cited by:

    1. repec:oup:amlawe:v:19:y:2017:i:1:p:202-243. is not listed on IDEAS
    2. Breitmoser, Yves, 2015. "Knowing me, imagining you: Projection and overbidding in auctions," MPRA Paper 62052, University Library of Munich, Germany.
    3. Breitmoser, Yves, 2017. "Knowing Me, Imagining You:," Rationality and Competition Discussion Paper Series 36, CRC TRR 190 Rationality and Competition.
    4. Andrzej Baniak & Peter Grajzl, 2017. "Optimal Liability when Consumers Mispredict Product Usage," American Law and Economics Review, Oxford University Press, vol. 19(1), pages 202-243.

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