Stakes and Investor Behaviors

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See all articles by Pengfei Sui

Pengfei Sui

The Chinese University of Hong Kong, Shenzhen

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: September 15, 2022

Abstract

We examine how stakes affect investor behaviors. In our unique setting, the same investors trade stocks in their real accounts using their own money and, at the same time, trade in a simulated setting. Our real-world within-investor estimation produces strong evidence that investors exhibit stronger biases and perform worse in their higher-stakes real accounts than in their lower-stakes simulated accounts. Even with no monetary stakes, investors exhibit strong biases in their simulated accounts, and biases in the two types of accounts are strongly positively correlated. Such behavioral consistency suggests that low-stakes experimental methods, although imperfect, can be informative about real-world human behaviors. Using account data from two brokerage companies, we find that investors exhibit a stronger disposition effect on positions with greater portfolio weight. Hence, the finding that stakes-strengthening-biases may not be unique to the comparison between no-monetary and high-monetary stakes.

Keywords: stakes; behavioral biases; individual investors; household finance

JEL Classification: C91; D91; G41; G50

Suggested Citation

Sui, Pengfei and Wang, Baolian, Stakes and Investor Behaviors (September 15, 2022). Available at SSRN: https://ssrn.com/abstract=

Pengfei Sui

The Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China
15810011687 (Phone)
518172 (Fax)

HOME PAGE: http://www.pengfeisui.com

Baolian Wang (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

314 Stuzin Hall
Gainesville, FL 32611
United States

HOME PAGE: http://www.wangbaolian.com

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