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Article
Publication date: 1 April 2021

Selim Aren, Hatice Nayman Hamamci and Safvan Özcan

The aim of this study, the moderating effect of pleasure-seeking and loss aversion, was investigated in relation to the big five personality traits with regard to risky investment…

Abstract

Purpose

The aim of this study, the moderating effect of pleasure-seeking and loss aversion, was investigated in relation to the big five personality traits with regard to risky investment intentions.

Design/methodology/approach

In the study, the data was obtained between January and November 2019 via an online survey with convenience sampling. The total number of subjects is 886. The authors used IBM SPSS Statistics for analysis. Exploratory factor analysis, correlation analysis, regression analysis and discriminant analysis were performed.

Findings

Significant relationships were found between five personality traits and risky investment intentions. In these relationships, the moderator effect of pleasure-seeking for extraversion, conscientiousness and neuroticism personality traits was also determined. Besides, investment preferences for choosing “unknown and new investment” against “known and experienced investment”, which is a typical feature of the balloon periods, were modeled with big five personality traits and motivation variables (pleasure-seeking and loss aversion) and the equation was formed. As a result, high accuracy classification success was obtained.

Originality/value

The study is unique owing to its findings. In addition, general risk aversion and risky investment intention were investigated simultaneously to explain the different findings in the literature regarding the attitude of big five personality traits to risk and personality traits that show consistent approach were identified.

Details

Kybernetes, vol. 50 no. 12
Type: Research Article
ISSN: 0368-492X

Keywords

Book part
Publication date: 23 October 2023

Glenn W. Harrison and J. Todd Swarthout

We take Cumulative Prospect Theory (CPT) seriously by rigorously estimating structural models using the full set of CPT parameters. Much of the literature only estimates a subset…

Abstract

We take Cumulative Prospect Theory (CPT) seriously by rigorously estimating structural models using the full set of CPT parameters. Much of the literature only estimates a subset of CPT parameters, or more simply assumes CPT parameter values from prior studies. Our data are from laboratory experiments with undergraduate students and MBA students facing substantial real incentives and losses. We also estimate structural models from Expected Utility Theory (EUT), Dual Theory (DT), Rank-Dependent Utility (RDU), and Disappointment Aversion (DA) for comparison. Our major finding is that a majority of individuals in our sample locally asset integrate. That is, they see a loss frame for what it is, a frame, and behave as if they evaluate the net payment rather than the gross loss when one is presented to them. This finding is devastating to the direct application of CPT to these data for those subjects. Support for CPT is greater when losses are covered out of an earned endowment rather than house money, but RDU is still the best single characterization of individual and pooled choices. Defenders of the CPT model claim, correctly, that the CPT model exists “because the data says it should.” In other words, the CPT model was borne from a wide range of stylized facts culled from parts of the cognitive psychology literature. If one is to take the CPT model seriously and rigorously then it needs to do a much better job of explaining the data than we see here.

Details

Models of Risk Preferences: Descriptive and Normative Challenges
Type: Book
ISBN: 978-1-83797-269-2

Keywords

Book part
Publication date: 3 June 2008

Glenn W. Harrison and E. Elisabet Rutström

We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths…

Abstract

We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferences in experiments.

Details

Risk Aversion in Experiments
Type: Book
ISBN: 978-1-84950-547-5

Open Access
Article
Publication date: 26 October 2018

Ahmed Bouteska and Boutheina Regaieg

The current study aims to investigate the impacts of two behavioral biases, namely, loss aversion and overconfidence on the performance of US companies. First, the impact of loss

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Abstract

Purpose

The current study aims to investigate the impacts of two behavioral biases, namely, loss aversion and overconfidence on the performance of US companies. First, the impact of loss aversion on the economic performance of companies was assessed. Second, the impact of overconfidence on market performance was discussed.

Design/methodology/approach

This study used around 6,777 quarterly observations on the population of US-insured industrial and services companies over the 2006-2016 period. Ordinary least squares (OLS) regression in two panel data models were used to test the hypotheses formulated for the study.

Findings

It was documented that the loss-aversion bias negatively affects the economic performance of companies and this is achieved for both sectors. In contrast, the findings suggest that overconfidence positively affects market performance of industrial firms but negatively affects market performance in service firms. Further robust evidence was found that overconfidence bias seems to be dominant, and hence, investors may tend to be more overconfident rather than more loss-averse.

Originality/value

This research can be extended by focusing on the following question: What is the impact of the contradictory (positive and negative) effects of an investor's loss aversion and overconfidence on the US company performance in case of realization of a stock market crisis or stock market crash?

Details

Journal of Economics, Finance and Administrative Science, vol. 25 no. 50
Type: Research Article
ISSN: 2077-1886

Keywords

Article
Publication date: 30 August 2019

Liang Wang, Tingjia Xu and Jie Chen

The purpose of this paper is to study the decision-making behavior of the initiator and the participant under innovative and project-based tasks, respectively. It further explores…

Abstract

Purpose

The purpose of this paper is to study the decision-making behavior of the initiator and the participant under innovative and project-based tasks, respectively. It further explores the impact of the participant’s loss aversion and the initiator’s incentive level on the participant’s optimal effort level to reveal the implicit managerial mechanism.

Design/methodology/approach

This paper uses the Principal-agent Theory, Prospect Theory and Game Theory to study the decision-making behavior in crowdsourcing tasks. First, according to the return at the reference point, it establishes the utility function models of the participant and the initiator. Second, based on diverse loss aversion coefficient and incentive coefficient, it constructs the decision-making models of two types of task respectively. Third, it verifies the validity of models through simulation analysis.

Findings

For innovative task, the participant’s optimal effort level increases with the increment of loss aversion and incentive level, but decreases with the increase of his effort cost. For project-based task, the participant’s optimal effort level rises with the decrease of loss aversion; if the initiator does not take appropriate incentives, information asymmetry will lead to the task becoming a low-level innovation approach. Moreover, under innovative task, when the participant has loss aversion (or loss aversion reversal), his optimal effort level is higher (or lower) than that with no loss aversion, while the result under project-based task is just the opposite.

Originality/value

This paper characterizes two types of crowdsourcing task. Based on the prospect theory, it develops the decision-making models of the participant and the initiator under innovative and project-based tasks, thus exploring the impact of loss aversion and incentive level on their decision-making behavior. According to the findings in this paper, the initiator may effectively speculate the participant’s effort level and adopt reasonable monetary incentive measures to optimize the crowdsourcing return. In addition, this study can provide some reference for the design of incentive mechanism in crowdsourcing tasks and improve the relevant research of crowdsourcing.

Details

Kybernetes, vol. 49 no. 5
Type: Research Article
ISSN: 0368-492X

Keywords

Book part
Publication date: 23 December 2005

David Ng and Mehdi Sadeghi

This paper studies the empirical application of an asset pricing model derived from the irrational individual behavior of loss aversion. Previous research using loss aversion

Abstract

This paper studies the empirical application of an asset pricing model derived from the irrational individual behavior of loss aversion. Previous research using loss aversion asset pricing finds conclusive evidence that estimations match market equity premium and volatility using simulation data. We find that within its empirical application, the estimated errors are comparable to errors estimated from the capital asset pricing model. This study of the correlations between rational and irrational asset pricing model from the empirical results finds validity for both estimated values. Finally, we see the importance of cultures, economic development and financial development on asset pricing through an empirical examination of five pacific-basin countries in the estimation of asset pricing models.

Details

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

Article
Publication date: 28 June 2022

Xinsheng Xu, Ping Ji and Felix T.S. Chan

With the rapid development of e-commerce, multi-sourcing with supply contracts and spot buying has become more and more popular in reality. The main purpose of the paper is to…

Abstract

Purpose

With the rapid development of e-commerce, multi-sourcing with supply contracts and spot buying has become more and more popular in reality. The main purpose of the paper is to explore a loss-averse buyer's optimal procurement policy in a multi-sourcing under e-commerce surroundings.

Design/methodology/approach

The study introduces the loss aversion utility function to characterize the loss aversion effect and derives a loss-averse buyer's optimal procurement policy in a multi-sourcing with a wholesale price contract and spot market.

Findings

A loss-averse buyer could order no items in a wholesale price contract and only needs to replenish commodities from spot market under certain conditions. In addition, the study shows that spot capacity has important influences on a loss-averse buyer's optimal ordering decision in the wholesale price contract.

Originality/value

This is the first paper to study the loss aversion effect on a buyer's procurement decision in a multi-sourcing. The results present important managerial insights for a loss-averse buyer to devise optimal ordering policies in a multi-sourcing under e-commerce surroundings.

Details

Industrial Management & Data Systems, vol. 122 no. 8
Type: Research Article
ISSN: 0263-5577

Keywords

Article
Publication date: 2 May 2017

Thomas Sproul and Clayton P. Michaud

Prospect theory is now widely accepted as the dominant model of choice under risk, but has not been fully incorporated into applied research because of uncertainty about how to…

Abstract

Purpose

Prospect theory is now widely accepted as the dominant model of choice under risk, but has not been fully incorporated into applied research because of uncertainty about how to include population-level parameter estimates. The purpose of this paper is to characterize heterogeneity across people to lay a foundation for future applied research.

Design/methodology/approach

The paper uses elicitation data from field experiments in Vietnam to fit a finite Gaussian mixture model using the expectation maximization algorithm. Applied results are simulated for investment allocations under myopic loss aversion.

Findings

The authors find that about 20 percent of the sample is classified as extremely loss averse, while the rest of the population is only mildly loss averse. This implies a bimodal distribution of loss aversion in the population.

Research limitations/implications

The data set is only moderately sized: 181 subjects. Future research will be needed to extend these results out of sample, and to other regions.

Originality/value

This paper provides empirical evidence that heterogeneity matters in prospect theory modeling. It highlights how policy makers might be misled by assuming that average prospect theory parameters are typical within the population.

Details

Agricultural Finance Review, vol. 77 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 30 November 2021

Shilpi Gupta and Monica Shrivastava

The study aims to understand the impact of loss aversion and herding on investment decision of retail investors. The study further evaluates the mediating role of fear of missing…

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Abstract

Purpose

The study aims to understand the impact of loss aversion and herding on investment decision of retail investors. The study further evaluates the mediating role of fear of missing out (FOMO) in retail investors on these relationships.

Design/methodology/approach

The study employed questionnaire survey to collect data from retail investors of Indian stock market. Total 323 data were collected. The collected data were examined using SmartPLS. Factor analysis and partial least square structural equation modeling were employed for fulfilling the objectives of the study.

Findings

The results of the study revealed that investment decisions of retail investors are significantly influenced by loss aversion, herd behavior as well as FOMO. Assessing the impact of herd behavior and loss aversion on investment decision in presence and absence of FOMO exposed that FOMO partially mediates these relations. The mediation was complementary in nature as the presence of FOMO increased the influence of loss aversion and herd behavior on retail investor's investment decisions.

Practical implications

Behavioral predispositions are accountable for numerous irregularities in stock markets. Thus, it is quite substantial to realize the stimulus of these partialities on investment decisions. The outcomes of this study would help financial planners and investors to keep in mind the different ways their decision outcomes could be biased and try to ignore them.

Originality/value

Though there have been many studies conducted on behavioral biases and their impact on investment decisions, there are very few studies that have taken into account the FOMO factor in investment, in context of the behavioral biases. Theoretically, FOMO has been linked with herd behavior and greed of earning more, but there are very few empirical supports to this fact. Thus, this study is an attempt to fill this gap by examining the role of FOMO on investment decisions and the different biases associated with it.

Details

International Journal of Emerging Markets, vol. 17 no. 7
Type: Research Article
ISSN: 1746-8809

Keywords

Abstract

Details

Understanding the Investor: A Maltese Study of Risk and Behavior in Financial Investment Decisions
Type: Book
ISBN: 978-1-78973-705-9

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