Persistence of Beliefs in an Investment Experiment
34 Pages Posted: 4 Feb 2008 Last revised: 19 Jun 2008
Date Written: June 19, 2008
A number of behavioral finance theories posit that investors adhere to their existing beliefs in spite of new information. This paper reports the results of an investment experiment which shows that subjects' inferences are biased by their prior beliefs in a manner that depends on investment outcomes. Specifically, their perception of new information was more positively biased for their prior favored assets when incurring losses than gains. This asymmetric bias may help explain empirical patterns such as loser momentum and suggests modifications to models of belief persistence in markets.
Keywords: Experimental finance; Behavioral finance, Information processing, Confirmatory Bias, Momentum
JEL Classification: D89, G19
Suggested Citation: Suggested Citation