Hedging against embarrassment

• Published in: Journal of economic behavior & organization Vol. 116; pp. 310 - 318
• Main Authors: Goulart, Marco, da Costa, Newton C.A., Andrade, Eduardo B., Santos, André A.P.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.08.2015; Elsevier Sequoia S.A
• Subjects: Behavioral finance; Decision analysis; Disposition effect; Economic performance; Financial performance; Hedging; Lab experiments; Realized gains & losses; Securities markets; Securities trading; Self-conscious emotions; Simulation; Stock exchange; Studies; Self-conscious emotions; Lab experiments; Disposition effect; Behavioral finance
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2015.04.014

•Sixty-three students participated in a one-hour experiment.•Subjects were significantly more likely to realize gains than losses.•Expected disclosure influenced individual investor's financial performance.•Subjects hedged against embarrassment of a poor financial performance. This paper assesses the extent to which the expected disclosure to peers of an individual investor's financial performance influences his/her stock-trading decisions. In a lab experiment, participants trade in incentivized stock market simulations, knowing that their financial performance will be either made public or kept private. The results show a significant increase in the disposition effect when financial performance is to be made public, resulting from a spike in the realization of gains. We conclude by suggesting that this phenomenon may be due to individuals’ strategic attempt to hedge against the embarrassment of ending the trading session at the bottom of the performance ranking.