Mitigating Investor Risk Seeking Behavior in a Down Real Estate Market
Journal of Behavioral Finance, 2010
Posted: 17 Jun 2010 Last revised: 23 Aug 2010
Date Written: June 15, 2010
Using an extension of the prospect theory known as false reference points, this study examines the behavior of real estate investors after experiencing a loss. The results confirm our central hypothesis that when investors attempt to avoid the pain of regret by changing the lens through which they view losses, they become more likely to hold onto bad investments. This unwillingness to sell bad investments in the short-run causes investors to be more likely to experience heightened levels of unavoidable regret in the long-run. The results hold across demographic characteristics, but are slightly more pronounced for men and international investors, specifically those from Asia.
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