Experience Effects on Wall Street vs. Main Street: Field and Lab Evidence of Context Dependence

We examine how and why context influences experiential learning, comparing professional and private-context stock market experiences. We find opposing patterns: In professional contexts, experiential learning exhibits a primacy bias, where sticky early experiences cause an underreaction to subsequent experiences. In contrast, in private contexts, a recency bias causes beliefs to fluctuate excessively over time. To identify the causal effect of context, we leverage (i) panel data on the dynamics of context-related experiences and expectations of finance professionals and (ii) experimental data on investment choices. Our experimental design allows us to identify the cognitive mechanisms underlying the documented context dependence of experience effects.