An exploratory experimental analysis of path-dependent investment behaviors

• Published in: Journal of economic psychology Vol. 67; pp. 47 - 65
• Main Authors: Deaves, Richard, Kluger, Brian, Miele, Jennifer
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.08.2018
• Subjects: Disposition effect; House money effect; Path-dependent behavior; Path-dependent behavior; House money effect; Disposition effect; G4; G11
• ISSN: 0167-4870; 1872-7719
• DOI: 10.1016/j.joep.2018.04.006

•Portfolio choice experiment design separates path-dependent behaviors.•Strong correlations between the disposition effect and wealth effects.•Significant sex-based differences in path-dependent behaviors.•Males more likely to make portfolio changes in response to relative price changes. In an experimental setting designed to cleanly partition the disposition effect and various wealth effects, we find evidence that such path-dependent behaviors are related in the sense that those subject to one effect are more or less likely to exhibit another. For example, those subject to the disposition effect are more likely to be subject to the break-even effect. A prospect-theory utility function dominated by curvature rather than loss aversion could account for this finding. There are also significant gender differences in path-dependent behaviors. Notably, males are more likely to make portfolio adjustments in response to changes in relative prices.