An Experiment on Diversification and Path Dependence
Abstract In an experiment where subjects can allocate their wealth between cash and two risky assets, we analyze path-dependent portfolio choices. The experiment is designed to isolate cases where…
Do Risk Simulations Lead to Persistently Better Investment Decisions
Risk simulations based on experience sampling were found to significantly improve initial investment decisions. We analyze the advantages and limitations of risk simulations in a setting in which…
Fooled by Randomness: Investor Perception of Fund Manager Skill
Return-chasing investors almost exclusively consider top-performing funds for their investment decisions. When drawing conclusions about the managerial skill of these top performers, they tend to…
The Effect of a High-Risk Stock Fund on Long-Term Investment: An Experimental Study
- Business, Economics
This article presents a multitrial experiment that extends the classic experiment of Thaler et al.  by adding a high-risk stock fund to the bond and stock funds used in the original experiment.…
Taking the sting out of choice: Diversification of investments
It is often the case that one can choose a mix of alternative options rather than have to select one option only. Such an opportunity to diversify may blunt the risk involved in all-or-none choice.…
Reinforcement learning about asset variability and correlation in repeated portfolio decisions
- EconomicsJournal of Behavioral and Experimental Finance
Does the Color of Feedback Affect Investment Decisions
This paper presents a multi-period experiment that extends a classic experiment on investment allocation preferences by adding colors to the feedback returned to participants. The results show that…
Contradictory Deviations from Maximization: Environment-Specific Biases, or Reflections of Basic Properties of Human Learning?
Analyses of human reaction to economic incentives reveal contradictory deviations from maximization. For example, underinvestment in the stock market suggests risk aversion, but insufficient…
Learning and the Economics of Small Decisions
Mainstream analysis of economic behavior assumes that economic incentives can shape behavior even when individual agents have limited understanding of the environment (see related arguments in Nash2,…
SHOWING 1-10 OF 41 REFERENCES
Why Do Individual Investors Hold Under-Diversified Portfolios?
- Economics, Business
This study examines the diversification decisions of more than 60,000 individual investors during a six year period (1991-96) in recent U.S. capital market history. The majority of investors in our…
Model Misspecification and Under-Diversification
In this Paper we develop a model of intertemporal portfolio choice where an investor accounts explicitly for the possibility of model misspecification. This work is motivated by the difficulty in…
How should private investors diversify? : An empirical evaluation of alternative asset allocation policies to construct a "world market portfolio"
This study evaluates the out-of-sample performance of numerous asset allocation strategies from the perspective of a Euro zone investor. Besides an increased sample period from January 1973 to…
The Diversification Puzzle
The levels of diversification in U.S. investors' equity portfolios present a puzzle. Today's optimal level of diversification, measured by the rules of mean–variance portfolio theory, exceeds 300…
Household Portfolio Diversification: A Case for Rank-Dependent Preferences
The proliferation of novel preference theories in financial economics is hampered by a lack of non-experimental evidence and by the theories' additional complexity which has not been shown to be…
How Many Stocks Make a Diversified Portfolio
Abstract We show that a well-diversified portfolio of randomly chosen stocks must include at least 30 stocks for a borrowing investor and 40 stocks for a lending investor. This contradicts the widely…
Reinforcement Learning and Savings Behavior
- EconomicsThe Journal of finance
We show that individual investors over-extrapolate from their personal experience when making savings decisions. Investors who experience particularly rewarding outcomes from saving in their 401(k)-a…
Do Investors Trade Too Much?
This paper takes a first step towards demonstrating that overall trading volume in equity markets is excessive, by showing that it is excessive for a particular group of investors: those with…
How Risky Do I Invest: The Role of Risk Attitudes, Risk Perceptions, and Overconfidence
- Economics, BusinessDecis. Anal.
It is found that investors' risk-taking behavior is affected by their subjective risk attitude in the financial domain and by the risk and return of an investment alternative, and it is illustrated that overconfidence has an impact on risk behavior as predicted by theoretical models.
Adaptive learning and risk taking.
- EconomicsPsychological review
A formal theory of how adaptive sampling influences risk taking is developed, showing that a risk-neutral decision maker may learn to prefer a sure thing to an uncertain alternative with identical expected value and a symmetric distribution, even if the decision maker follows an optimal policy of learning.