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Selling Losers and Keeping Winners: How (Savings) Goal Dynamics Predict a Reversal of the Disposition Effect

Marketing Letters, Forthcoming

15 Pages Posted: 30 Oct 2012 Last revised: 22 Nov 2013

Jaakko Aspara

Hanken School of Economics; Aalto University School of Business (formerly known as Helsinki School of Economics)

Arvid O. I. Hoffmann

University of Adelaide - Business School; Network for Studies on Pensions, Aging and Retirement (Netspar)

Date Written: November 22, 2013

Abstract

A well-documented behavioral pattern in consumer financial decision-making is the disposition effect, which refers to the tendency to sell winning investments too early, while holding on to losing investments too long. This bias has negative wealth consequences, because typically, individuals’ losing investments continue to underperform while their winning investments continue to outperform. Using a goal-systemic framework, the present research indicates that individuals’ susceptibility to the disposition effect can be reversed by activating a superordinate (savings) goal. Experimental results indicate that three effective ways to activate a superordinate (savings) goal, and thereby reverse the disposition effect, are: (1) subtly prime it with goal-related words, (2) prime it by making an overall portfolio loss salient, and (3) prime it by explicitly mentioning a goal with a clear end-state.

Keywords: Disposition Effect, Household Finance, Goal Systems Theory, Investment Decisions, Savings Goals

JEL Classification: G02, G11, D14

Suggested Citation

Aspara, Jaakko and Hoffmann, Arvid O. I., Selling Losers and Keeping Winners: How (Savings) Goal Dynamics Predict a Reversal of the Disposition Effect (November 22, 2013). Marketing Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2156914 or http://dx.doi.org/10.2139/ssrn.2156914

Jaakko Aspara

Hanken School of Economics ( email )

P.O. Box 479
Helsinki, Helsinki 00101
Finland

Aalto University School of Business (formerly known as Helsinki School of Economics) ( email )

P.O. Box 21230
Helsinki, 00076
Finland

Arvid O. I. Hoffmann (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Network for Studies on Pensions, Aging and Retirement (Netspar)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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