Are Individual Investors Rational? Evidence from NBA Top Shot Challenges

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 can be 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