NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Sarah Rudorf

University of Bern, Dept. Psychology
Fabrikstrasse 8
CH-3012 Bern, Switzerland

E-Mail: sarah.rudorf@psy.unibe.ch
Institutional Affiliation: University of Bern

NBER Working Papers and Publications

May 2017The Effect of Prior Choices on Expectations and Subsequent Portfolio Decisions
with Camelia M. Kuhnen, Bernd Weber: 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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