Fear, Social Projection, and Financial Decision Making

Journal of Marketing Research, Forthcoming

34 Pages Posted: 19 Jun 2011

See all articles by Chan Jean Lee

Chan Jean Lee

KAIST (Korea Advanced Institute of Science and Technology)

Eduardo B. Andrade

affiliation not provided to SSRN; FGV/EBAPE

Date Written: June 18, 2011

Abstract

The number of individual investors who trade stocks online has significantly increased in recent years. Surprisingly, consumer researchers have paid little attention to how emotions influence individual investors’ stock-trading decisions. In a series of three experiments, this paper investigates the impact of incidental fear on the decision to sell in a stock market simulation. The results show that fearful (vs. control) participants sell their stock earlier (experiments 1 through 3). This effect, however, is contingent on particular features of the market. Fear leads to early sell-off when the value of the stock is peer-generated, but not when the value of the stock is computer-generated (experiment 2). Early sell-off as a result of incidental fear is also observed when participants believe their risk attitude is common among the participants in the market, but not when they believe their risk attitude is very unique (experiment 3). Social projection - i.e., people’s tendency to rely on their current state of mind to estimate other people’s actions - explains the phenomenon.

Keywords: Emotion, Feeling, Fear, Social Projection, Decision Making, Behavioral Finance

JEL Classification: M31

Suggested Citation

Lee, Chan Jean and Andrade, Eduardo B. and Andrade, Eduardo B., Fear, Social Projection, and Financial Decision Making (June 18, 2011). Journal of Marketing Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1866568

Chan Jean Lee (Contact Author)

KAIST (Korea Advanced Institute of Science and Technology) ( email )

KAIST
Seoul
United States

Eduardo B. Andrade

FGV/EBAPE ( email )

R. Jornalista Orlando Dantas 30
Botafogo
Rio de Janeiro, Rio de Janeiro 22231-010
Brazil

affiliation not provided to SSRN

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