Investor Memory

62 Pages Posted: 15 Mar 2019 Last revised: 14 Mar 2022

See all articles by Katrin Gödker

Katrin Gödker

Maastricht University - School of Business and Economics

Peiran Jiao

Maastricht University - Department of Finance

Paul Smeets

Maastricht University

Date Written: November 1, 2021

Abstract

We provide experimental evidence of a memory bias which affects individuals' beliefs and decisions to re-invest. Individuals over-remember positive investment outcomes of their chosen investments and under-remember negative ones. Based on their memories, subjects form overly optimistic beliefs about their investment and re-invest even when doing so leads to a lower expected return. We further provide evidence on a motivational mechanism driving the memory bias. Our findings contribute to the understanding of how people learn from their experiences in financial markets. More generally, the documented memory bias offers a consistent explanation for stylized facts about investor behavior.

Keywords: Memory, Selective Recall, Beliefs, Motivated Reasoning, Investor Behavior, Experimental Economics

JEL Classification: D01, G4

Suggested Citation

Gödker, Katrin and Jiao, Peiran and Smeets, Paul, Investor Memory (November 1, 2021). Available at SSRN: https://ssrn.com/abstract=3348315 or http://dx.doi.org/10.2139/ssrn.3348315

Katrin Gödker (Contact Author)

Maastricht University - School of Business and Economics ( email )

Netherlands

Peiran Jiao

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Paul Smeets

Maastricht University ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands
+31433883643 (Phone)

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