Are Individual Investors Rational? Evidence from NBA Top Shot Challenges

15 Pages Posted: 8 Jun 2022 Last revised: 27 Sep 2022

See all articles by Ignatios Draklellis

Ignatios Draklellis

Board of Governors of the Federal Reserve System

Yeonjoon Lee

The Federal Reserve Bank of Richmond

Date Written: May 25, 2022

Abstract

We study whether individual investors behave rationally using data from a non-fungible tokens (NFTs) market for NBA digital collectibles. In this collectibles market, individual investors participate in challenges in which it is key to predict future product prices. First, we find that retail investors seem to use all relevant information when forming their expectations. Second, although retail investors are fairly good at predicting future product prices, they tend to overestimate cheaper product prices. This finding is explained using preference for payoffs with lottery features and sensation seeking behavior which are both observed in individual stock market investors.

Keywords: Individual Investor Rationality, Digital Collectibles, NBA Top Shot, Non-Fungible Tokens, Blockchain

JEL Classification: D12, G11, G14, G41

Suggested Citation

Draklellis, Ignatios and Lee, Yeonjoon, Are Individual Investors Rational? Evidence from NBA Top Shot Challenges (May 25, 2022). Available at SSRN: https://ssrn.com/abstract=4119833 or http://dx.doi.org/10.2139/ssrn.4119833

Ignatios Draklellis

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Yeonjoon Lee (Contact Author)

The Federal Reserve Bank of Richmond ( email )

United States

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