Home Bias explained by familiarity, not ambiguity

50 Pages Posted: 2 Jul 2021 Last revised: 27 Sep 2023

See all articles by Soo Hong Chew

Soo Hong Chew

Southwestern University of Finance and Economics; National University of Singapore

King King Li

Shenzhen Audencia Financial Technology Institute; Shenzhen University WeBank Institute of Fintech

Jacob S. Sagi

University of North Carolina Kenan-Flagler Business School

Date Written: September 26, 2023

Abstract

Using a trailing digit betting design in four experiments, we identify familiarity bias as an explanation for home bias that is distinct from ambiguity aversion or informational advantage. The first two studies establish the existence of a strong familiarity bias within an investment context. A third experiment establishes that standard home bias and familiarity bias are of comparable magnitudes. The last study further demonstrates that home bias can be explained, within subject, by familiarity bias but not by ambiguity aversion. The studies consistently point to familiarity bias as a driver of home bias across investment context and subject types.

Keywords: Source Preference, Familiarity Bias, Home Bias, Ambiguity Aversion, Investment

JEL Classification: D81, C91

Suggested Citation

Chew, Soo Hong and Li, King King and Sagi, Jacob, Home Bias explained by familiarity, not ambiguity (September 26, 2023). Available at SSRN: https://ssrn.com/abstract=3870716 or http://dx.doi.org/10.2139/ssrn.3870716

Soo Hong Chew

Southwestern University of Finance and Economics ( email )

Hong Yuan Building
Chengdu, Sichuan 631000
China

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

King King Li (Contact Author)

Shenzhen Audencia Financial Technology Institute ( email )

Shenzhen University WeBank Institute of Fintech

Jacob Sagi

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/sagij/

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