Inaction Inertia in the Stock Market1

Based on the inaction inertia effect, it was hypothesized that investors who missed an opportunity to leave a “bear market” will be less likely to sell the stock at a later opportunity when facing a grave loss. Participants in a stock‐market computer game were given an opportunity to sell their stock for a moderate gain. Having missed this initial opportunity and now facing a grave loss, these participants were less likely to sell their stock compared to participants whose potential loss was not as grave, or compared to participants facing the same magnitude of loss who had no previous opportunity to leave the market. Analysis of the time spent by participants on reading relevant information concerning the stock market suggests that this tendency toward continued inaction was not the result of careful deliberation over market trends. The results are discussed in terms of counterfac‐tual thinking and anticipated regret.     

Trading performance,disposition effect,overconfidence, representativeness bias,and experience of emerging market investors

Using brokerage account data from China, we study investment decision making in an emerging market. We find that Chinese investors make poor trading decisions: the stocks they purchase underperform those they sell. We also find that Chinese investors suffer from three behavioral biases: (i) they tend to sell stocks that have appreciated in price, but not those that have depreciated in price, consistent with a disposition effect, acknowledging gains but not losses; (ii) they seem overconfident; and (iii) they appear to believe that past returns are indicative of future returns (a representativeness bias). In comparisons to prior findings, Chinese investors seem more overconfident than U.S. investors (i.e., the Chinese hold fewer stocks, yet trade very often) and their disposition effect appears stronger. Finally, we categorize Chinese investors based on proxy measures of experience and find that “experienced” investors are not always less prone to behavioral biases than are “inexperienced” ones. Copyright © 2007 John Wiley & Sons, Ltd.     

Possession attachment: Individual differences in the endowment effect

The endowment effect suggests that people become attached to objects that are in their possession, and they demand a higher price to sell an object they own than they would be willing to pay to buy the same object. The results of four experiments support the suggestion that “possession attachment” is related to adult attachment styles in close relationships. Measures of attachment style in close relationships significantly predicted both actual and hypothetical selling prices moderating the endowment effect (Study 1), and significantly correlate with ratings of possession attachment (Study 2). Specifically, attachment anxiety is positively correlated with the selling prices of objects, while attachment avoidance shows no significant relation with object evaluation. The third and fourth experimental studies further demonstrated that attachment anxiety enhances possession evaluation and inhibits trades. The studies used real commodities and real money, and therefore, they have implications for everyday decisions as well as for the development of theories to better understand decisions about trades, negotiations, and choice of goods. Copyright © 2010 John Wiley & Sons, Ltd.     

Low‐status aversion: the effect of self‐threat on willingness to buy and sell

Consumption decisions are inherently rooted in both what to consume and what to forgo. Although prior research has focused on consumption, we instead examine what compels consumers to steer clear of particular goods. In two studies, we demonstrated that individuals experiencing self‐threat avoid low‐status goods to prevent further damage to their self‐worth. Individuals facing self‐threat showed a decreased willingness to buy (Study 1), and a correspondingly greater willingness to sell (Study 2) low‐status goods, as compared with nonthreatened individuals. Notably, these effects emerged even when such behaviors were associated with economic costs (Study 2). Together, these results highlight how the motive to preserve the self can affect market exchanges, thereby painting a more complete portrait of the relationship between consumption, status, and the self.     

Cultural Variations in Reasons for Advice Seeking

Five studies examined cultural differences in reasons for advice‐seeking behaviors. Content analyses in Study 1A and self‐ratings in Study 1B consistently revealed that Euro‐Canadians were more likely than East Asians (mainly Chinese) to seek advice for informational reasons, whereas East Asians were more likely than Euro‐Canadians to seek advice for relational reasons. Study 2A showed that Chinese displayed a higher level of relationship concern than Euro‐Canadians in deciding from whom to seek advice in a decision dilemma. Study 2B found that, although Chinese and Euro‐Canadians did not differ from each other on willingness to pay for informational advice, Chinese were willing to pay more for building a relationship with the advisor through advice seeking than Euro‐Canadians were. Study 3 explored how the advice giver might perceive an advice seeker in terms of their competence and the closeness of their relationship after advice was sought for various reasons. We found that relationally oriented advice seeking increased the perceived competence of the advice seeker among Chinese more than among Euro‐Canadians. Information‐oriented advice seeking increased the perceived closeness between the advice seeker and advice giver among Chinese more than among Euro‐Canadians. Implications for other aspects of advice exchange are discussed. Copyright © 2016 John Wiley & Sons, Ltd.     

Sensitivity to Affective Information and Investors' Evaluation of Past Performance: An Eye‐tracking Study

In the present work, we used the eye‐tracking methodology to investigate how affective reactions influence investment decision making. In addition, we looked at individual differences in terms of people's sensitivity to affective information and how efficiently they regulate it, that is, trait emotional intelligence. We demonstrated that people who are more sensitive to affective information have larger pupil dilation when looking at the past performance of a stock fund. In addition, we also found that participants' larger pupil dilation had an impact on their investment decisions (whether people were more likely to sell their shares, hold on to the investment, or buy more shares). A larger pupil dilation led people to be more consistent and willing to invest more money on a fund regardless from its past performance (positive or negative). We also tested the hypothesis that individuals with a larger pupil dilation should be more influenced by a fund's past performance (e.g., selling their shares more often when the past performance of the fund was negative and buying additional shares more often when the past performance was positive). However, results did not support this explanation. Finally, our data revealed that the effect of individual differences in trait emotional intelligence on investment decisions was significantly mediated by pupil dilation. In the discussion, we explored the relationship between our results and previous evidence on the role of pupil dilation in processing information under uncertainty and the role of affect in decision making. Copyright © 2015 John Wiley & Sons, Ltd.     

Buying/Selling Price Preference Reversals: Preference for Environmental Changes in Buying versus Selling Modes

Many studies have shown that the most people are willing to pay to obtain an object often is significantly less than the least they will accept to relinquish the object (i.e., selling prices tend to be higher than buying prices). Most tests of the buying/selling price discrepancy have elicited values either for everyday market items (e.g., mugs, candy bars) or for environmental changes (e.g., a decrease in air quality, a landfill clean-up). The literature indicates a possible interaction between buying/selling prices and commodity type; buying/selling price differences seem greater for environmental improvements than for market items. In other words, people show more relative preference for environmental improvements in selling modes than they do in buying modes. A significant difference in preference due to elicitation mode is commonly termed a "preference reversal." The four experiments presented here establish this new preference reversal and examine the reasons for it. The results from these studies provide information about the nature of preference reversals, the valuation process as a whole, and the unique problem of valuing complex and risky items such as environmental changes.     

Rumors and stable-cause attribution in prediction and behavior

Two stock-market simulation experiments investigated the notion that rumors that invoke stable-cause attributions spawn illusory associations and less regressive predictions and behavior. In Study 1, illusory perceptions of association and stable causation (rumors caused price changes on the day after they appeared) existed despite rigorous conditions of nonassociation (price changes were unrelated to rumors). Predictions (recent price trends will continue) and trading behavior (departures from a strong buy-low–sell-high strategy) were both anti-regressive. In Study 2, stability of attribution was manipulated via a computerized tutorial. Participants taught to view price-changes as caused by stable forces predicted less regressively and departed more from buy-low–sell-high trading patterns than those taught to perceive changes as caused by unstable forces. Results inform a social cognitive and decision theoretic understanding of rumor by integrating it with causal attribution, covariation detection, and prediction theory.     

Culture and decision‐making: Investigating cultural variations in the East Asian and North American online decision‐making processes

Research in cross‐cultural psychology suggests that East Asians hold holistic thinking styles whereas North Americans hold analytic thinking styles. The present study examines the influence of cultural thinking styles on the online decision‐making processes for Hong Kong Chinese and European Canadians, with and without time constraints. We investigated the online decision‐making processes in terms of (1) information search speed, (2) quantity of information used, and (3) type of information used. Results show that, without time constraints, Hong Kong Chinese, compared to European Canadians, spent less time on decisions and parsed through information more efficiently, and Hong Kong Chinese attended to both important and less important information, whereas European Canadians selectively focused on important information. No cultural differences were found in the quantity of information used. When under time constraints, all cultural variations disappeared. The dynamics of cultural differences and similarities in decision‐making are discussed.     

Beyond mere ownership: transaction demand as a moderator of the endowment effect

Transaction demand refers to the motivation to complete a transaction. As transaction demand increases, owners should sell at lower prices and buyers should buy at higher ones. It was predicted that the endowment effect—the tendency for minimum selling price to exceed maximum buying price for a particular commodity—should be minimized when buyers and sellers have high transaction demand. The results of two experiments supported this hypothesis: In Experiment 1, the endowment effect was observed when participants imagined another individual wanting to buy from or sell to them, but not when they imagined wanting to buy from or sell to another individual. In Experiment 2, a reversal of the endowment effect was observed when transaction demand was high for both prospective buyers and sellers. The findings highlight the importance of motivational factors in addition to other factors (e.g., loss aversion, reference dependence) in determining behavior.     

Less willing to pay but more willing to buy: How the elicitation method impacts the valuation of a promotion

Willingness to pay (WTP—how much one is willing to pay for something) and willingness to buy (WTB—whether one is willing to buy something at a given price) are two common methods to elicit valuations and normatively should yield the same valuation order between two options. However, this research finds that WTP and WTB can yield opposite valuation orders between the regular offer and the promotional offer of a product. Specifically, it demonstrate that, (a) if the valuation of a product is only elicited with WTP, consumers value the product less when it is offered with a price promotion than when it is not; (b) if the valuation of a product is only elicited with WTB, consumers value the product more when it is offered with a price promotion than when it is not; and (c) if the valuation of a product is first elicited with WTP and then elicited with WTB, consumers always value the product less when it is offered with a price promotion than when it is not. A value‐inference account is proposed for the above findings, according to which, consumers infer the value of a promoted product differently when the valuation is elicited only with WTP or only with WTB. Theoretically, this research extends prior literature on sales promotion, showing that the valuation of a promotion is subject to the elicitation method. Practically, this research suggests how to help consumers manage their purchase intentions for promoted products.     

Chinese are more loss averse than British

This research investigates how culture might influence loss aversion. Chinese were expected to be more loss averse than British because of cultural differences in regulatory focus. Study 1 reveals that compared with British participants, Chinese participants were less likely to give up gifts they had received in exchange for new gifts. In Study 2, Chinese and British participants imagined buying a computer which either had a high specification and a high price tag (high reference), or a basic specification and a low price tag (low reference). Participants were informed that the (reference) computer was unavailable, and they had to choose between two available computers, which were both cheaper and less powerful than the high reference computer, and more expensive and more powerful than the low reference computer. The results reveal that the difference in price tag between the two available computers had a bigger impact on Chinese buying decisions than on British buying decisions when it was viewed as a loss. Furthermore, both promotion focus and prevention focus mediated the influence of culture on buying decisions in the low reference condition. No cross‐cultural difference was found in the high reference condition.     

个体证券投资者自我效能感对赌徒谬误的影响

赌徒谬误指当某一独立随机事件发生后,人们倾向认为这一结果再次出现的概率降低。如果一连串的随机事件呈现出一定的趋势,人们倾向于认为随机事件将呈现系统性反转。证券市场中的赌徒谬误指在股票上涨（下跌）序列中做出股价将要下跌（上涨）的判断。本研究探讨股票市场特征（趋势长度及方向）及投资者的人格特征（自我效能感）对赌徒谬误的影响。以83名股票投资者为对象,采用多层线性模型进行分析,结果发现：趋势长度主效应显著,短线情境下赌徒谬误频次更高;趋势方向主效应显著,下跌情境下赌徒谬误频次更高;二者交互作用显著,在短线下跌情境下,赌徒谬误频次更高;投资者的自我效能感对股票趋势长度具有调节作用,高自我效能的投资者在短线情境下更容易出现赌徒谬误。     

The psychophysics of spending

Several theories of decision making are based, in part, upon the principles of psychophysics (Kahneman and Tversky, 1979; Thaler, 1985). For example, due to the psychophysics of quantity, the difference between $10 and $20 seems greater than the difference between $110 and $120. To determine whether psychophysics influences consumers' decisions, subjects in four studies made real or hypothetical purchases. It was predicted that as the size of the purchase increased, subjects would be more willing to buy additional smaller items. Small extra purchases should seem like minor expenditures when they follow larger purchases. Results of the four studies supported our hypothesis. In addition, it was found that subjects responded not only to actual changes in purchase size but also to changes in the presentation or framing of a purchase.     

Up or Down? How Culture and Color Affect Judgments

In the Mainland China stock market, an upmarket is represented by the color red, whereas a downmarket is represented by the color green. Elsewhere, including the Chinese Hong Kong stock market, the color representations are the opposite. Three studies were conducted to examine the red‐up–green‐down effect for Mainland Chinese as well as the green‐up–red‐down effect for Hong Kong people. Study 1 showed that Mainland Chinese tended to predict greater economic growth (study 1a) and higher growth in consumption trends (study 1b) when the experimental materials were presented in red than in green, whereas Hong Kong participants exhibited the opposite tendencies. Study 2 found that Mainland Chinese implicitly associated red and green with up and down, respectively; Hong Kong people, however, implicitly associated green and red with up and down, respectively. Study 3 further indicated that Mainland Chinese were more likely to predict good outcomes when scenarios were presented in red, whereas Hong Kong participants were more likely to predict good outcomes when scenarios were presented in green. These findings suggest that culturally specific environment cues could influence human prediction and judgment. Implications for judgment generally are discussed. Copyright © 2013 John Wiley & Sons, Ltd.     

Victim and Perpetrator Groups' Responses to the Canadian Government's Apology for the Head Tax on Chinese Immigrants and the Moderating Influence of Collective Guilt

European and Chinese Canadians' perceptions and expectations of the Canadian government's apology for the head tax placed on Chinese immigrants during the early twentieth century were examined, along with Chinese Canadians' willingness to forgive the transgression. Among both European and Chinese Canadians, beliefs about the importance attributed to the event and perception of the apology as deserved and sincere heightened expectations of improved intergroup relations. Collective guilt acceptance among European Canadians heightened the relation between perceived sincerity and positive expectations, whereas collective guilt assignment by Chinese Canadians heightened the relation between sincerity and forgiveness. A one‐year follow‐up of whether Chinese Canadians were equally satisfied with the apology indicated that their willingness to grant forgiveness had waned, and although on the whole expectations of improved relations were met, those who assigned more collective guilt were less convinced. Intergroup apologies and their effectiveness at facilitating intergroup relations are discussed.     

Explaining the price-volume relationship: The difference between price changes and changing prices

Trading on the stock market increases when there are large changes in price levels, and falls when these changes are small. An experimental test revealed strong support for the hypothesis that large price changes cause heavy trading. Trading patterns, profit data, and memory measures revealed that the vast majority of the subjects employed a tracking strategy; that is, they bought when the price fell and sold when it rose. To test whether the use of this strategy was due to a selective application of the representativeness heuristic on the price stimuli, a second experiment was conducted in which subjects were presented either with only price information or with only price change information. Results supported the representativeness hypothesis, with subjects in the price change condition tracking poorly and earning less profit. The results are discussed with regard to their implications for the stock market and the psychology of prediction.     

Optimism across cultures: In response to the severe acute respiratory syndrome outbreak

Based on our early research, we predicted that the Chinese may be more optimistic and less pessimistic than North Americans in response to negative life events. A survey was conducted to investigate optimism cross culturally in the context of the severe acute respiratory syndrome (SARS) outbreaks in Canada and China. Chinese students in Beijing and European Canadians in Toronto answered questions about their perceptions of SARS. No significant cultural difference was found on dispositional optimism, as measured by the Revised Life Orientation Test (LOT-R). Unrealistic optimism was measured in the context of SARS. Both groups demonstrated unrealistic optimism (i.e. reporting that the self was less likely than an average person to get infected with SARS). Such optimistic bias was stronger among Chinese than among Canadians. Compared to the actual infection rates in Beijing and Toronto, both Chinese and Canadian participants overestimated their own chances of getting infected, indicating that they were being pessimistic. Indeed, Chinese were less pessimistic than Canadians. In addition, even though the Chinese reported more inconvenience brought by SARS than did Canadians, they also reported more positive changes brought by SARS, reflecting the Chinese dialectical views of events. Implications for research on optimism in context are discussed.