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The disposition effect when deciding on behalf of others

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  • Hermann, Daniel
  • Mußhoff, Oliver
  • Rau, Holger A.

Abstract

This article presents experimental evidence on the disposition effect for the case where a subject decides on behalf of another person. In our setting, trading effort can only be affected by subjects’ intrinsic motivation, since trading actions only influence the profits of a matched person. However, in our control treatment, trades have a direct influence on subjects’ profits. We find that trading on behalf of others amplifies disposition effects when subjects have no experience. By contrast, no significant differences exist when subjects are experienced. Inexperienced subjects, characterized by a greater concern for others, cause this treatment effect. Thus, trading responsibility results in an emotional burden for subjects without experience and this leads to weak trading performance. Our findings add interesting insights for management practices in delegated decisions, as they highlight that when investors are inexperienced, prosociality may hinder trading efficiency.

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  • Hermann, Daniel & Mußhoff, Oliver & Rau, Holger A., 2019. "The disposition effect when deciding on behalf of others," Journal of Economic Psychology, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:joepsy:v:74:y:2019:i:c:s0167487019300935
    DOI: 10.1016/j.joep.2019.102192
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    2. Bachmann, Kremena, 2024. "Do you have a choice?: Implications for belief updating and the disposition effect," Journal of Economic Psychology, Elsevier, vol. 102(C).
    3. Pelster, Matthias & Hofmann, Annette, 2018. "About the fear of reputational loss: Social trading and the disposition effect," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 75-88.
    4. Jinesh Jain & Nidhi Walia & Simarjeet Singh & Esha Jain, 2022. "Mapping the field of behavioural biases: a literature review using bibliometric analysis," Management Review Quarterly, Springer, vol. 72(3), pages 823-855, September.
    5. Elisabeth Vollmer & Daniel Hermann & Oliver Musshoff, 2019. "The disposition effect in farmers’ selling behavior: an experimental investigation," Agricultural Economics, International Association of Agricultural Economists, vol. 50(2), pages 177-189, March.
    6. Rau, Holger A., 2021. "Time preferences in decisions for others," Economics Letters, Elsevier, vol. 200(C).
    7. Hennig, Jan Christoph & Hullmann, Rieke & Rau, Holger A. & Wolff, Michael, 2021. "The hidden cost of profit sharing on participation in employee stock purchase plans," University of Göttingen Working Papers in Economics 414, University of Goettingen, Department of Economics.
    8. Janssen, Dirk-Jan & Li, Jiangyan & Qiu, Jianying & Weitzel, Utz, 2020. "The disposition effect and underreaction to private information," Journal of Economic Dynamics and Control, Elsevier, vol. 113(C).
    9. Stephen L Cheung, 2024. "A meta-analysis of disposition effect experiments," Working Papers 2024-02, University of Sydney, School of Economics.
    10. Liêu, L.M. & Pelster, M., 2020. "Framing and the disposition effect in a scopic regime," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 175-185.
    11. Eleonore Batteux & Eamonn Ferguson & Richard J Tunney, 2019. "Do our risk preferences change when we make decisions for others? A meta-analysis of self-other differences in decisions involving risk," PLOS ONE, Public Library of Science, vol. 14(5), pages 1-19, May.
    12. Fatas, Enrique & Restrepo-Plaza, Lina, 2022. "When losses can be a gain. A large lab-in-the-field experiment on reference dependent forgiveness in Colombia," Journal of Economic Psychology, Elsevier, vol. 88(C).
    13. Minh-Lý Liêu, 2021. "Peer attention and the disposition effect," Working Papers Dissertations 81, Paderborn University, Faculty of Business Administration and Economics.

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    More about this item

    Keywords

    Disposition effect; Experiment; Decisions on behalf of others; Social value orientation; Loss aversion;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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