The Effects of Approach/Avoidance Motivation and Gain/Loss-Framing on the Processing of Information Cues by Non-Professional Investors

Abstract

Investor judgment and decision-making (JDM) is influenced by several factors. We examine the effect of dispositional goal orientation (approach and avoidance motivation), as well as situational goal orientation (gain- and loss-framing), on non-professional investors’ JDM. In an experiment, 150 business students evaluated the relevance of (positive and negative) information cues and estimated the resulting stock price changes. Results show that approach motivation increases the perceived relevance of (positive and negative) information cues, which in turn results in greater expected stock price changes. The increasing effect that approach motivation has on the perceived relevance of negative information cues is amplified by gain-framing and dampened by loss-framing. Similarly, the effect that the perceived relevance of information cues has on expected stock price changes is amplified under gain-framing and dampened under loss-framing. These results contribute to the JDM literature and have practical implications for non-professional investors.

Keywords: Approach motivation, Avoidance motivation, Gain-loss-framing, Judgment and decision-making, Regulatory focus

JEL Classification: G41, M41