IDEAS home Printed from https://ideas.repec.org/p/biu/wpaper/2011-05.html
   My bibliography  Save this paper

To What Extent do Investors in a Financial Market Anchor Their Judgments? Evidence from the Hong Kong Horserace Betting Market

Author

Listed:
  • Johnnie E.V. Johnson

    (University of Southhampton)

  • Shuang Liu
  • Adi Schnytzer

    () (Bar-Ilan University)

Abstract

This paper explores the use of the anchoring and adjustment heuristic by decision makers in a financial market; in particular, the degree to which horserace bettors anchor their probability judgments on the advantage afforded by a horse‟s barrier-position. The results suggest that under certain conditions bettors anchor on barrier-position information revealed at previous race meetings, but not on the most recent race outcomes. In fact, bettors appear to use the most recent race outcomes appropriately when forming probability estimates; but only when the results are in line with their mental model of barrier-position advantage. Bettors with varying levels of expertise are shown to be subject to anchoring, although greater expertise is generally associated with less anchoring. The paper concludes that the manner and degree of anchoring in real world environ.

Suggested Citation

  • Johnnie E.V. Johnson & Shuang Liu & Adi Schnytzer, 2011. "To What Extent do Investors in a Financial Market Anchor Their Judgments? Evidence from the Hong Kong Horserace Betting Market," Working Papers 2011-05, Bar-Ilan University, Department of Economics.
  • Handle: RePEc:biu:wpaper:2011-05
    as

    Download full text from publisher

    File URL: http://www.biu.ac.il/soc/ec/wp/2011-05.pdf
    File Function: Working paper
    Download Restriction: no

    References listed on IDEAS

    as
    1. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, pages 1761-1800.
    2. Peltzman, Sam, 1981. "The Effects of FTC Advertising Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 403-448, December.
    3. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, pages 15-37.
    4. Paul H. Rubin, 1991. "The Economics of Regulating Deception," Cato Journal, Cato Journal, Cato Institute, pages 667-690.
    5. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    6. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains," The Quarterly Journal of Economics, Oxford University Press, pages 791-824.
    7. Levy, Daniel & Young, Andrew, 2004. "The Real Thing: Nominal Price Rigidity of the Nickel Coke, 1886–1959," MPRA Paper 1046, University Library of Munich, Germany.
    8. Eitan Gerstner & James D. Hess, 1990. "Can Bait and Switch Benefit Consumers?," Marketing Science, INFORMS, vol. 9(2), pages 114-124.
    9. Mark J. Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," The Review of Economics and Statistics, MIT Press, pages 514-533.
    10. Dutta, Shantanu & Bergen, Mark & Levy, Daniel, 2002. "Price flexibility in channels of distribution: Evidence from scanner data," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1845-1900, September.
    11. Georg Muller & Mark Bergen & Shantanu Dutta & Daniel Levy, 2006. "Private label price rigidity during holiday periods," Applied Economics Letters, Taylor & Francis Journals, pages 57-62.
    12. Daniel Levy & Haipeng (Allan) Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Working Papers 2004-08, Bar-Ilan University, Department of Economics.
    13. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
    14. Joel Waldfogel & Jeffrey Milyo, 1999. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, American Economic Association, pages 1081-1096.
    15. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    16. Daniel Levy & Haipeng Allan Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment "in the Small:" An Implication of Rational Inattention," Macroeconomics 0407012, EconWPA, revised 11 May 2005.
    17. Elizabeth J. Warner & Robert B. Barsky, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 321-352.
    18. Daniel Levy & Haipeng (Allan) Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Working Papers 2004-08, Bar-Ilan University, Department of Economics.
    19. Chen, Haipeng (Allan) & Levy, Daniel & Ray, Sourav & Bergen, Mark, 2008. "Asymmetric price adjustment in the small," Journal of Monetary Economics, Elsevier, pages 728-737.
    20. Daniel Levy & Haipeng (Allan) Chen & Georg Müller & Shantanu Dutta & Mark Bergen, 2010. "Holiday Price Rigidity and Cost of Price Adjustment," Economica, London School of Economics and Political Science, vol. 77(305), pages 172-198, January.
    21. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, pages 665-690.
    22. Jarrell, Gregg & Peltzman, Sam, 1985. "The Impact of Product Recalls on the Wealth of Sellers," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 512-536, June.
    23. Laurence Ball & N. Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Harvard Institute of Economic Research Working Papers 1997, Harvard - Institute of Economic Research.
    24. Levy, Daniel & Dutta, Shantanu & Bergen, Mark, 2002. "Heterogeneity in Price Rigidity: Evidence from a Case Study Using Microlevel Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 197-220, February.
    25. Sourav Ray & Haipeng (Allan) Chen & Mark Bergen & Daniel Levy, 2005. "Asymmetric Wholesale Pricing: Theory and Evidence," Working Papers 2005-02, Bar-Ilan University, Department of Economics.
    26. Peltzman, Sam, 1973. "An Evaluation of Consumer Protection Legislation: The 1962 Drug Amendments," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1049-1091, Sept.-Oct.
    27. Benham, Lee, 1972. "The Effect of Advertising on the Price of Eyeglasses," Journal of Law and Economics, University of Chicago Press, vol. 15(2), pages 337-352, October.
    28. Sourav Ray & Haipeng (Allan) Chen & Mark E. Bergen & Daniel Levy, 2006. "Asymmetric Wholesale Pricing: Theory and Evidence," Marketing Science, INFORMS, vol. 25(2), pages 131-154, 03-04.
    29. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, pages 703-725.
    30. Julio Rotemberg, 1987. "The New Keynesian Microfoundations," NBER Chapters,in: NBER Macroeconomics Annual 1987, Volume 2, pages 69-116 National Bureau of Economic Research, Inc.
    31. Robert B. Barsky & Mark Bergen & Shantanu Dutta & Daniel Levy, 2003. "What Can the Price Gap between Branded and Private-Label Products Tell Us about Markups?," NBER Chapters,in: Scanner Data and Price Indexes, pages 165-228 National Bureau of Economic Research, Inc.
    32. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, pages 703-725.
    33. Daniel Levy & Shantanu Dutta & Mark Bergen & Robert Venable, 1998. "Price adjustment at multiproduct retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 81-120.
    34. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, pages 255-274.
    35. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, pages 15-37.
    36. Yulei Luo, 2008. "Consumption Dynamics under Information Processing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, pages 366-385.
    37. W. Kip Viscusi, 1993. "Product-Risk Labeling," Books, American Enterprise Institute, number 53129.
    38. Daniel Levy & Haipeng (Allan) Chen & Georg Müller & Shantanu Dutta & Mark Bergen, 2010. "Holiday Price Rigidity and Cost of Price Adjustment," Economica, London School of Economics and Political Science, pages 172-198.
    39. Beales, Howard & Craswell, Richard & Salop, Steven C, 1981. "The Efficient Regulation of Consumer Information," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 491-539, December.
    40. Mark Zbaracki & Mark Bergen & Daniel Levy & Mark Ritson, 2005. "Beyond the Cost of Price Adjustment: Investments in Pricing Capital," Working Papers 2005-03, Bar-Ilan University, Department of Economics.
    41. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 409-451.
    42. Shantanu Dutta & Mark Bergen & Daniel Levy & Robert Venable, 2005. "Menu Costs, Posted Prices, and Multiproduct Retailers," Macroeconomics 0505007, EconWPA.
    43. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213.
    44. Dutta, Shantanu, et al, 1999. "Menu Costs, Posted Prices, and Multiproduct Retailers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 683-703, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:biu:wpaper:2011-05. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics). General contact details of provider: http://edirc.repec.org/data/debaril.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.