The 'Ostrich Effect': Selective Attention to Information About Investments

41 Pages Posted: 10 Aug 2005

See all articles by Niklas Karlsson

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology

Duane J. Seppi

Carnegie Mellon University - David A. Tepper School of Business

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences

Date Written: May 5, 2005

Abstract

We develop a model of selective attention to information and apply it to investors' decisions about whether to obtain information about the value of their portfolio. In our model investors receive information about the aggregate level of the market and then decide whether to look up the value of their personal portfolio. Doing so not only provides additional information, but also increases the psychological impact of information on utility - an impact effect - and increases the speed of a utility reference point adjustment - a reference point updating effect. The main prediction of the model is that investors will check the value of their portfolios more frequently in rising markets but will "put their heads in the sand" when markets are flat or falling. We test and find support for this prediction with three Scandinavian data sets.

Keywords: investor behavior, selective exposure, attention

JEL Classification: G10, D84

Suggested Citation

Karlsson, Niklas and Seppi, Duane J. and Loewenstein, George F., The 'Ostrich Effect': Selective Attention to Information About Investments (May 5, 2005). Available at SSRN: https://ssrn.com/abstract=772125 or http://dx.doi.org/10.2139/ssrn.772125

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology ( email )

P.O. Box 500
Goteborg, 40530
Sweden

Duane J. Seppi

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-2298 (Phone)
412-268-8896 (Fax)

George F. Loewenstein (Contact Author)

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States
412-268-8787 (Phone)
412-268-6938 (Fax)

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