Why Do Individuals Exhibit Investment Biases?
Claremont McKenna College - Robert Day School of Economics and Finance
University of Washington - Michael G. Foster School of Business
October 12, 2012
Claremont McKenna College Robert Day School of Economics and Finance Research Paper No. 2012-01
For a long list of investment "biases,'' e.g., home bias, loss aversion, and performance chasing, we find that genetic differences explain up to 45% of the variation across individual investors. The genetic factors that influence investment biases are also found to affect behaviors in other, non-investment, domains. This evidence is consistent with a view that investment biases are manifestations of innate and evolutionary ancient features of human behavior. The environment an investor experiences also affects investment biases, either directly or as a moderator of genetic predispositions. For example, we find that work-related experience with finance seems to reduce genetic predispositions to investment biases, while general education does not. Finally, even genetically identical investors, who grow up in the same family environment, often differ substantially in their investment behaviors due to individual-specific experiences or events.
Number of Pages in PDF File: 50
Keywords: Household finance, behavioral finance, individual investor behaviorworking papers series
Date posted: February 23, 2012 ; Last revised: October 19, 2012
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