Myopic Loss Aversion and Investment Decisions: from the Laboratory to the Field
Whether, and to what extent, behavioral anomalies uncovered in the lab manifest themselves in the field remains of first order importance in finance and economics. We begin by examining behavior of retail traders/investors making investment decisions in constructed laboratory markets. Our results show that the behaviors of the traders are consistent with myopic loss aversion. We combine the lab results with a unique individual-level matched dataset on daily stock market transactions and portfolio positions over a two year period. We find that lab behaviors help to predict, but do not fully capture, the essential real-world trading analogs of retail traders.
We are grateful to generous financial support from Monash University, to our partnered brokerages in Dhaka (Reliance, IIDFC, Lanka Motijheel, Lanka Uttara, PFI, Prime Bank, Mercantile, and Modern) and to Arif Islam, who provided us the confidential data for this study, as well as to the Bangladesh Institute of Development Studies for research support. We also thank Foez Mojumder for excellent research assistance and Chau Nguyen for involvement in the project at the initial stage. Finally, we appreciate the comments of Klaus Abbink, Peter Bossaerts, Chris Clapp, Silvio Contessi, Huu Duong, Glenn Harrison, Jean Paul Rabanal Sobrino, Jeffrey Lafrance, Thomas Langer, Matthew Leister, Birendra Rai, ChoonWang, and participants at the University of Chicago (Chicago, 2019, 2018), the Australia Conference of Economists (Melbourne, 2019), the Experimental Finance Conference (Copenhagen, 2019), the Advances with Field Experiments (Boston, 2018), the Academy of Behavior Finance (Chicago, 2018), the Behavioral and Experimental Economics and Finance Workshop (Sydney, 2017), and Monash University Seminars (Melbourne, 2017, 2018). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.