Behavior in a simplified stock market: the status quo bias, the disposition effect and the ostrich effect
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Previous literature suggests specific behavioral tendencies cause investors to deviate from optimal investing. We investigate three such tendencies in a simplified stock market. Subjects do trade for better stocks, but do not reach their maximum potential earnings, most commonly because they choose to ignore information and continue to hold on to a stock regardless of its performance. The results support the predictions of the status quo bias, but not the ostrich effect or the disposition effect.
KeywordsBehavioral finance Experimental economics Status quo bias Self-signaling Disposition effect
JEL ClassificationC91 D01 D53 D83
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