Grit, Loss Aversion, and Investor Behavior

53 Pages Posted: 16 Jun 2021

See all articles by William Bazley

William Bazley

University of Kansas

Sima Jannati

University of Missouri-Columbia

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Date Written: June 14, 2021

Abstract

We examine whether grit affects individuals' preferences and trading decisions. Grit is the sustained effort toward a goal despite setbacks. It is malleable and distinct from the Big Five personality traits. Using experiments formalized in prospect theory, we find that grit reduces loss aversion. By diminishing loss aversion, gritty investors exhibit a lower disposition effect since they are more willing to exit losing investments. Consequently, they accumulate about 7% more wealth relative to control participants. Overall, grit affects the quality of investment decisions. Ultimately, our results suggest that interventions cultivating grit could improve households' financial outcomes.

Keywords: Prospect theory, investor preferences, disposition effect, experimental market, personality traits

JEL Classification: G11, G40, G41

Suggested Citation

Bazley, William and Jannati, Sima and Korniotis, George M., Grit, Loss Aversion, and Investor Behavior (June 14, 2021). Available at SSRN: https://ssrn.com/abstract=3866704 or http://dx.doi.org/10.2139/ssrn.3866704

William Bazley

University of Kansas ( email )

3143 Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States

Sima Jannati

University of Missouri-Columbia ( email )

511 Cornell Hall
COLUMBIA, MO 65211
United States

George M. Korniotis (Contact Author)

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

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