Search results

The purpose of this paper is to suggest that a fundamental cause of market booms and busts is that investor risk attitudes change during market booms. Specifically, the authors propose that an investor’s risk aversion falls as (s)he attempts to “keep up with the Joneses.” This paper studies changing risk attitudes induced by social interactions, and shows that risk-seeking behavior that is initially successful may induce copycat behavior and lead individuals in the same peer group to reduce their degree of risk aversion to attempt to obtain similar rewards, a phenomenon we call “Gain attraction in the presence of social interactions.”

The authors propose a new theoretical model that incorporates the social interaction term into the value function of prospect theory. The modified value function empowers the standard prospect theory by introducing the idea that people often compare themselves to others and then compare their gains to the gains of others. The model predicts that, if people exhibit some degree of envy, they will treat the observed utility achieved by others as destination points and will reposition themselves to the new reference points, and at that point their willingness to accept risk dramatically increases.

The theoretical model is tested empirically against experimental data and survey data. Consistent with the theoretical prediction, the experimental results suggest that, after subjects observed the behavior of the leading investor in the controlled laboratory condition, there was a significant increase in risk-taking behavior. The survey results further confirm that envy is an emotional force behind the dissatisfaction and disappointment among investors when they miss available opportunities that others were able to take advantage of.

This study provides evidence that investment decisions are not made in a social vacuum by isolated individuals, but rather in social settings in which individuals are influenced by the actions and outcomes of their peers. The study also opens up a new research avenue that the reduction in risk aversion induced by peer effects may be an important element explaining how greed is transmitted across the economy during times of financial boom, thus helping to fuel the flames of financial crises.

The purpose of this paper is to conduct a controlled experiment to examine the effect of goal setting and affect framed feedback on repeated asset allocation investment decisions.

The design of the experiment is a 2×2 between subject design. Subjects allocated monies among four investments for 20 periods. One manipulation varied whether subjects received performance feedback in the form of a happy or sad face, while another manipulation varied whether subjects set a financial goal for themselves and received goal attainment performance feedback.

The main findings include: subjects initially allocate assets in a manner roughly consistent with their stated preference for risk; prior year asset performance leads subjects to make significant changes in portfolio asset allocation in a manner consistent with beliefs of positive autocorrelation in asset returns; and the addition of happy or sad faces to performance feedback information leads to even greater changes in asset allocation.

Using ideas from the theory on the self‐regulation of behavior and the role of affect in decision making, the authors develop an original framework to account for the results.

The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting.

In an experiment in which the task consisted of allocating a portfolio between a risky and riskless asset for 20 periods, two groups of subjects were confronted with either a market boom or bust in the initial four periods.

The findings suggest that after controlling for demographic characteristics, the timing of a boom or bust during the investment lifecycle matters greatly. Subjects that faced a bust early in their investment lifecycle held less of the risky asset in subsequent periods compared to subjects who experienced an early boom.

To the best of the authors knowledge this is the first laboratory study investigating the role of early aggregate shocks on subsequent investment behavior.

To investigate the nature of investment expertise and factors affecting the information processing and performance of investment experts, this paper hypothesizes normative characteristics of investment expertise and compares such characteristics with actual characteristics documented in prior literature on the investment expert. Based on collective evidence from these sources, a model of investment expertise is proposed.

Results support the existence of investment expertise in (1) the nature of knowledge, (2) problem solving and information search, and (3) performance. A variety of factors that could influence the information processing and performance of the investment expert, including personal, cognitive, and contextual elements, are also discussed in the paper and included in the proposed model of investment expertise.

The purpose of this paper is to examine the relationships between individual personality and compensation package preferences and whether cross‐cultural differences exist in these preferences in the USA and India.

A survey methodology was used and subjects included 175 MBA students of two universities, one in the USA and one in India. Measurement instruments included a Big Five personality measure and a compensation pay strategy typology.

Results indicated a significantly different pattern of results between subjects in the two countries. In the India sample, introversion was a significant predictor of a security/commitment pay strategy and extroversion and neuroticism were significant predictors of performance‐driven pay strategies. In the US sample, none of the personality variables was predictive of pay strategy preferences.

Multinational firms should reconsider “one‐size‐fits‐all” compensation plans and tailor strategies to fit the profile of their workforce.

The paper provides empirical data indicating that relationships exist between personality and pay package preferences, and that these relationships differ by culture.

The purpose of this paper is to use the theoretical and empirical pension literatures to question whether employers are likely to gain any competitive advantage from degrading or eliminating their employees’ defined benefit (DB) pensions.

Critical literature review, bringing together and synthesizing the industrial relations, economics, social policy, and applied pensions literature.

DB pension plans do deliver a number of potential performance benefits, most notably a decrease in turnover and establishment of longer-term employment relationships. However, benefits are more pronounced in some conditions than others, which are identified.

Most of the analysis of pension effects to date focuses primarily on DB plans. Yet, these are declining in significance. In the years ahead, more attention needs to be paid to the potential consequences of defined contribution plans and other types of pension.

In re-evaluating DB pensions, firms have tended to focus on savings made through cost cutting. Yet, this approach tends to view a firm's people as an expense rather a potential asset. Attempts to abandon, modify, or otherwise reduce such schemes has the potential to save money in the short term, but the negative long-term consequences may be considerable, even if they are not yet obvious.

This paper is topical in that it consolidates existing research evidence from a number of different bodies of literature to make a case for the retention of DB pension plans, when, in many contexts, they are being scaled back or discarded. It raises a number of important issues for reflection by practitioners, and highlights key agendas for future scholarly research.

Research has suggested that ethics judgments should be made from an impartial perspective. However, people are often partial about their money. This study aims to investigate the extent to which perspectives – the perspective of those who can gain from the use of a financial practice and the perspective of those who can incur losses due to it – affect lay people’s ethics and legality judgments of the practice. In addition, it asks which factors influence their investment intentions.

The study uses a between-participant scenario experiment, in which participants are presented with cases of predatory trading and front running. Each participant is asked to take either a gain or loss perspective through the formulation of the presented cases. Subsequently, all participants make ethics, legality and investment intention judgments.

The authors establish that perspectives significantly affect people’s ethics judgments and, to a lesser extent, their legality judgments. People’s investment intentions depend on their perspectives, too, as well as on their financial considerations, ethics judgments, legality judgments and trust.

Research has focused on relatively stable determinants of people’s ethics judgments of financial practices. This paper shows that the situational prospect of profit can sway lay people’s judgments. When people take the gain perspective, they judge financial practices to be more ethical than when they take the loss perspective. Furthermore, people’s perspectives can distort their legality judgments and influence their investment intentions.

The purpose of this paper is to study and describe several biases in investment decision-making through the review of research articles in the area of behavioral finance. It also includes some of the analytical and foundational work and how this has progressed over the years to make behavioral finance an established and specific area of study. The study includes behavioral patterns of individual investors, institutional investors and financial advisors.

The research papers are analyzed on the basis of searching the keywords related to behavioral finance on various published journals, conference proceedings, working papers and some other published books. These papers are collected over a period of year’s right from the time when the most introductory paper was published (1979) that contributed this area a basic foundation till the most recent papers (2016). These articles are segregated into biases wise, year-wise, country-wise and author wise. All research tools that have been used by authors related to primary and secondary data have also been included into our table.

A new era of understanding of human emotions, behavior and sentiments has been started which was earlier dominated by the study of financial markets. Moreover, this area is not only attracting the, attention of academicians but also of the various corporates, financial intermediaries and entrepreneurs thus adding to its importance. The study is more inclined toward the study of individual and institutional investors and financial advisors’ investors but the behavior of intermediaries through which some of them invest should be focused upon, narrowing down population into various variables, targeting the expanding economies to reap some unexplained theories. This study has identified 17 different types of biases and also summarized in the form of tables.

The study is based on some of the most recent findings to have a quick overview of the latest work carried out in this area. So far very few extensive review papers have been published to highlight the research work in the area of behavioral finance. This study will be helpful for new researches in this field and to identify the areas where possible work can be done.

Practical implication of the research is that companies, policymakers and issuers of securities can watch out of investors’ interest before issuing securities into the market.

Under the Social Implication, investors can recognize several behavioral biases, take sound investment decisions and can also minimize their risk.

The essence of this paper is the identification of 17 types of biases and the literature related to them. The study is based on both, the literature on investment decisions and the biases in investment decision-making. Such study is less prevalent in the developing country like India. This paper does not only focus on the basic principles of behavioral finance but also explain some emerging concepts and theories of behavioral finance. Thus, the paper generates interest in the readers to find the solutions to minimize the effect of biases in decision-making.