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How to adapt to changing markets: experience and personality in a repeated investment game

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  • Hopfensitz, Astrid
  • Wranik, Tanja

Abstract

Investment behavior is traditionally investigated with the assumption that risky investment is on average advantageous. However, this may not always be the case. In this paper, we experimentally studied investment choices made by students and financial professionals under favorable and unfavorable market conditions in a multi-round investment game. In particular, the probability of winning was set so that investment in one condition was advantageous, and in one condition was disadvantageous. To investigate who is more likely to adapt their investment behaviors to the changing market conditions, we also measured personality and self-efficacy. We expected that investment behavior in changing markets could be predicted by a combination of experience (students, professionals), personality (anxiety, optimism, impulsivity, and Openness to Experience), and self-efficacy (belief in one’s ability to make good decisions in an investment task). Results indicate that professionals do not significantly differ from students in their decisions. Personality and self-efficacy both predicted investment behavior. In particular, we found that optimism and anxiety were a liability in unfavorable markets, leading to unreasonable levels of risk. Impulsivity was a liability in both favorable and unfavorable markets, leading to high risk on unfavorable markets, and low risk in favorable markets. Openness to experience was an asset in unfavorable markets, leading to adjusted risk taking. Finally, self-efficacy was generally related to higher levels of risk.

Suggested Citation

  • Hopfensitz, Astrid & Wranik, Tanja, 2009. "How to adapt to changing markets: experience and personality in a repeated investment game," MPRA Paper 17835, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17835
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    References listed on IDEAS

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    1. How to Adapt to Changing Markets: Experience and Personality in a Repeated Investment Game
      by Miguel in Simoleon Sense on 2010-05-26 18:56:13

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    Cited by:

    1. Marcin Rzeszutek & Adam Szyszka & Monika Czerwonka, 2015. "Investors’ Expertise, Personality Traits and Susceptibility to Behavioral Biases in the Decision Making Process," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 9(3), September.
    2. Yogita Singh & Mohd. Adil & S. M. Imamul Haque, 2023. "Personality traits and behaviour biases: the moderating role of risk-tolerance," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(4), pages 3549-3573, August.

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    More about this item

    Keywords

    risk taking; field experiment; personality; unfavorable conditions; professionals;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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