Abstract
Previous literature suggests specific behavioral tendencies cause investors to deviate from optimal investing. We investigate three such tendencies in a simplified stock market. Subjects do trade for better stocks, but do not reach their maximum potential earnings, most commonly because they choose to ignore information and continue to hold on to a stock regardless of its performance. The results support the predictions of the status quo bias, but not the ostrich effect or the disposition effect.
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This research is an extension of Brown’s undergraduate honors thesis at Ohio State University. Financial support was provided by the Honor’s College and the Department of Economics at Ohio State University. Kagel’s research was partially supported by grants from the National Science Foundation. We received helpful comments from Hal Arkes, David Cooper and two anonymous referees.
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Brown, A.L., Kagel, J.H. Behavior in a simplified stock market: the status quo bias, the disposition effect and the ostrich effect. Ann Finance 5, 1–14 (2009). https://doi.org/10.1007/s10436-007-0092-0
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DOI: https://doi.org/10.1007/s10436-007-0092-0