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An exploratory experimental analysis of path-dependent investment behaviors

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  • Deaves, Richard
  • Kluger, Brian
  • Miele, Jennifer

Abstract

In an experimental setting designed to cleanly partition the disposition effect and various wealth effects, we find evidence that such path-dependent behaviors are related in the sense that those subject to one effect are more or less likely to exhibit another. For example, those subject to the disposition effect are more likely to be subject to the break-even effect. A prospect-theory utility function dominated by curvature rather than loss aversion could account for this finding. There are also significant gender differences in path-dependent behaviors. Notably, males are more likely to make portfolio adjustments in response to changes in relative prices.

Suggested Citation

  • Deaves, Richard & Kluger, Brian & Miele, Jennifer, 2018. "An exploratory experimental analysis of path-dependent investment behaviors," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 47-65.
  • Handle: RePEc:eee:joepsy:v:67:y:2018:i:c:p:47-65
    DOI: 10.1016/j.joep.2018.04.006
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    1. Stivers, Adam & Tsang, Ming & Deaves, Richard & Hoffer, Adam, 2020. "Behavior when the chips are down: An experimental study of wealth effects and exchange media," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).

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    More about this item

    Keywords

    Path-dependent behavior; Disposition effect; House money effect;
    All these keywords.

    JEL classification:

    • G4 - Financial Economics - - Behavioral Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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