Advertisement

Marketing Letters

, Volume 26, Issue 2, pp 201–211 | Cite as

Selling losers and keeping winners: How (savings) goal dynamics predict a reversal of the disposition effect

  • Jaakko Aspara
  • Arvid O. I. Hoffmann
Article

Abstract

A well-documented behavioral pattern in consumer financial decision making is the disposition effect, which refers to the tendency to sell winning investments too early while holding on to losing investments too long. This bias has negative wealth consequences, because typically, individuals' losing investments continue to underperform while their winning investments continue to outperform. Using a goal-systemic framework, the present research indicates that individuals' susceptibility to the disposition effect can be reversed by activating a superordinate (savings) goal. Experimental results indicate that three effective ways to activate a superordinate (savings) goal, and thereby reverse the disposition effect, are as follows: (1) subtly prime it with goal-related words, (2) prime it by making an overall portfolio loss salient, and (3) prime it by explicitly mentioning a goal with a clear-end state.

Keywords

Consumer financial decision making Disposition effect Goal systems theory Investment decisions Savings goals 

Notes

Acknowledgments

Part of this work was completed while Arvid Hoffmann was visiting the Foster School of Business at the University of Washington, whose hospitality is gratefully acknowledged. The authors thank the editor, Frank R. Kardes, and an anonymous reviewer for valuable recommendations. The authors thank Stefanie Kleimeier, Joost Pennings, Thomas Post, and Martin Wetzels for their helpful suggestions on earlier versions of this work. The authors thank Donna Maurer for her editorial assistance.

References

  1. Antonides, G., de Groot, M. I., & van Raaij, W. F. (2011). Mental budgeting and the management of household finance. Journal of Economic Psychology, 32(4), 546–555.CrossRefGoogle Scholar
  2. Aspara, J., & Tikkanen, H. (2010). Consumers' stock preferences beyond expected financial returns: the influence of product and brand evaluations. International Journal of Bank Marketing, 28(3), 193–221.CrossRefGoogle Scholar
  3. Barber, B. M., & Odean, T. (2001). Boys will be boys: gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 116(1), 261–292.Google Scholar
  4. Chen, G., Kim, K. A., Nofsinger, J. R., & Rui, O. M. (2007). Trading performance, disposition effect, overconfidence, representativeness bias, and experience of emerging market investors. Journal of Behavioral Decision Making, 20(4), 425–51.CrossRefGoogle Scholar
  5. Da Costa, N., Goulart, M., Cupertino, C., Macedo, J., & Da Silva, S. (2013). The disposition effect and investor experience. Journal of Banking and Finance, 37(5), 1669–1675.CrossRefGoogle Scholar
  6. Dhar, R., & Zhu, N. (2006). Up close and personal: investor sophistication and the disposition effect. Management Science, 52(5), 726–40.CrossRefGoogle Scholar
  7. Feng, L., & Seasholes, M. (2005). Do investor sophistication and trading experience eliminate behavioral biases in finance markets? Review of Finance, 9(3), 305–51.CrossRefGoogle Scholar
  8. Fishbach, A., Friedman, R. S., & Kruglanski, A. W. (2003). Leading us not into temptation: momentary allurements elicit overriding goal activation. Journal of Personality and Social Psychology, 84(2), 296–309.CrossRefGoogle Scholar
  9. Fishbach, A., & Dhar, R. (2005). Goals as excuses or guides: the liberating effect of perceived goal progress on choice. Journal of Consumer Research, 32(3), 370–77.CrossRefGoogle Scholar
  10. Fishbach, A., Dhar, R., & Zhang, Y. (2006). Subgoals as substitutes or complements: the role of goal accessibility. Journal of Personality and Social Psychology, 91(2), 232–42.CrossRefGoogle Scholar
  11. Goldstein, D. G., Johnson, E. J., & Sharpe, W. (2008). Choosing outcomes versus choosing products: consumer-focused retirement investment advice. Journal of Consumer Research, 35(3), 440–56.CrossRefGoogle Scholar
  12. Grinblatt, M., & Keloharju, M. (2000). The investment behavior and performance of various investor types: a study of Finland's unique data set. Journal of Financial Economics, 55(1), 43–67.CrossRefGoogle Scholar
  13. He, X., Inman, J. J., & Mittal, V. (2008). Gender jeopardy in financial risk taking. Journal of Marketing Research, 45(4), 414–24.CrossRefGoogle Scholar
  14. Hoffmann, A. O. I., & Broekhuizen, T. L. J. (2010). Understanding investors' decisions to purchase innovative products: drivers of adoption timing and range. International Journal of Research in Marketing, 27(4), 342–55.CrossRefGoogle Scholar
  15. Jeffrey, S. A., Onay, S., & Larrick, R. P. (2010). Goal attainment as a resource: the cushion effect in risky choice above a goal. Journal of Behavioral Decision Making, 23(2), 191–202.CrossRefGoogle Scholar
  16. Johnson, J., & Tellis, G. J. (2005). Blowing bubbles: heuristics and biases in the run-up of stock prices. Journal of the Academy of Marketing Science, 33(4), 486–503.CrossRefGoogle Scholar
  17. Johnson, J., Tellis, G. J., & Macinnis, D. J. (2005). Losers, winners, and biased trades. Journal of Consumer Research, 32(2), 324–29.CrossRefGoogle Scholar
  18. Kahneman, D., & Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 47(2), 263–91.CrossRefGoogle Scholar
  19. Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The goal-gradient hypothesis resurrected: purchase acceleration, illusionary goal progress, and customer retention. Journal of Marketing Research, 43(1), 39–58.CrossRefGoogle Scholar
  20. Köpetz, C. A., Kruglanski, A. W., Arens, Z. G., Etkin, J., & Johnson, H. M. (2012). The dynamics of consumer behavior: a goal systemic perspective. Journal of Consumer Psychology, 22(2), 208–23.CrossRefGoogle Scholar
  21. Lee, H.-J., Park, J., Lee, J.-Y., & Wyer, R. S. (2008). Disposition effects and underlying mechanisms in e-trading of stocks. Journal of Marketing Research, 45(3), 362–78.CrossRefGoogle Scholar
  22. Odean, T. (1998). Are investors reluctant to realize their losses? Journal of Finance, 53(5), 1775–98.CrossRefGoogle Scholar
  23. Parker, A. M., & Fischhoff, B. (2005). Decision-making competence: external validation through an individual-differences approach. Journal of Behavioral Decision Making, 18(1), 1–27.CrossRefGoogle Scholar
  24. Raghubir, P., & Das, S. R. (2010). The long and short of it: why are stocks with shorter runs preferred? Journal of Consumer Research, 36(6), 964–82.CrossRefGoogle Scholar
  25. Shapira, Z., & Venezia, I. (2001). Patterns of behavior of professionally managed and independent investors. Journal of Banking and Finance, 28(8), 1573–1587.CrossRefGoogle Scholar
  26. Shefrin, H., & Statman, M. (1985). The disposition to sell winners too early and ride losers too long: theory and evidence. Journal of Finance, 40(3), 777–90.CrossRefGoogle Scholar
  27. Srull, T. K., & Wyer, R. S. (1979). The role of category accessibility in the interpretation of information about persons: some determinants and implications. Journal of Personality and Social Psychology, 37(10), 1660–72.CrossRefGoogle Scholar
  28. Thaler, R. H. (1985). Mental accounting and consumer choice. Marketing Science, 4(3), 199–214.CrossRefGoogle Scholar
  29. Touré-Tillery, M., & Fishbach, A. (2011). The course of motivation. Journal of Consumer Psychology, 21(4), 414–23.CrossRefGoogle Scholar
  30. Townsend, C., & Shu, S. B. (2010). When and how aesthetics influences financial decisions. Journal of Consumer Psychology, 20(4), 452–58.CrossRefGoogle Scholar
  31. Trope, Y., & Liberman, N. (2010). Construal-level theory of psychological distance. Psychological Review, 117(2), 440–63.CrossRefGoogle Scholar
  32. Van Rooij, M. C. J., Lusardi, A., & Alessie, R. J. M. (2011). Financial literacy and retirement planning in the Netherlands. Journal of Economic Psychology, 32(4), 593–608.CrossRefGoogle Scholar
  33. Weber, M., & Camerer, C. F. (1998). The disposition effect in securities trading: an experimental analysis. Journal of Economic Behavior and Organization, 33(2), 167–184.CrossRefGoogle Scholar
  34. Zhang, Y., Fishbach, A., & Dhar, R. (2007a). When thinking beats doing: the role of optimistic expectations in goal-based choice. Journal of Consumer Research, 34(4), 567–578.CrossRefGoogle Scholar
  35. Zhang, Y., Fishbach, A., & Kruglanski, A. W. (2007b). The dilution model: how additional goals undermine the perceived instrumentality of a shared path. Journal of Personality and Social Psychology, 92(3), 389–401.CrossRefGoogle Scholar
  36. Zhou, R., & Pham, M. T. (2004). Promotion and prevention across mental accounts: when financial products dictate consumers' investment goals. Journal of Consumer Research, 31(1), 125–35.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of MarketingAalto University School of BusinessHelsinkiFinland
  2. 2.Department of Finance, School of Business and EconomicsMaastricht UniversityMaastrichtThe Netherlands
  3. 3.Network for Studies on Pensions, Aging and Retirement (Netspar)TilburgThe Netherlands

Personalised recommendations