NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Bernd Weber

Center for Economics and Neuroscience
Nachtigallenweg 86 53127 Bonn
Germany

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of Bonn

NBER Working Papers and Publications

May 2017The Effect of Prior Choices on Expectations and Subsequent Portfolio Decisions
with Camelia M. Kuhnen, Sarah Rudorf: w23438
We document that prior portfolio choices influence investors' expectations about asset values, and their future choices. We find that people update more from information consistent with their prior choices, leading to sticky portfolios over time. These effects are related to how the brain's valuation centers encode new information about assets and about the trader's own success. These findings provide microfoundations for theoretical models where agents learn jointly about their skill and about asset values, leading to disagreement, and offer a common explanation for several puzzling investor behaviors, specifically, households' low stock market participation rate, and the disposition and repurchase effects.
 
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