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The psychology of investment behavior: (De)biasing financial decision‐making one graph at a time
Author(s) -
Duclos Rod
Publication year - 2015
Publication title -
journal of consumer psychology
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.433
H-Index - 110
eISSN - 1532-7663
pISSN - 1057-7408
DOI - 10.1016/j.jcps.2014.11.005
Subject(s) - stock (firearms) , investment decisions , economics , financial market , stock market , anchoring , behavioral economics , stock price , financial economics , insider trading , stock trading , finance , psychology , social psychology , mechanical engineering , paleontology , horse , series (stratigraphy) , engineering , biology
Abstract Consumers' welfare largely depends on the soundness of their financial decisions. To this effect, the present research examines how people process graphical displays of financial information (e.g., stock‐prices) to forecast future trends and invest accordingly. In essence, we ask whether and how visual biases in data interpretation impact financial decision‐making and risk‐taking. Five experiments find that the last trading day(s) of a stock bear a disproportionately (and unduly) high importance on investment behavior, a phenomenon we coin end‐anchoring . Specifically, a stock‐price closing upward (downward) fosters upward (downward) forecasts for tomorrow and, accordingly, more (less) investing in the present. Substantial investment asymmetries (up to 75%) emerge even as stock‐price distributions were generated randomly to simulate times when the market conjuncture is hesitant and no real upward or downward trend can be identified. Allying experimental manipulations to eye‐tracking technology, the present research begins to explore the underpinnings of end‐anchoring.