Financial Markets and Portfolio Management

, Volume 32, Issue 2, pp 167–205 | Cite as

Portfolio diversification: the influence of herding, status-quo bias, and the gambler’s fallacy

  • Ibrahim Filiz
  • Thomas Nahmer
  • Markus SpiwoksEmail author
  • Kilian Bizer


This experimental study examines the influence of herding [following the majority of fellow gamblers or the most successful gambler (guru)], status-quo bias, and the gambler’s fallacy on diversification behavior. We find that neither herding nor status-quo bias contributes significantly to non-optimal portfolio choices. The gambler’s fallacy, however, plays an important role in these decisions. Many subjects appear to find patterns in a history of random events and then use these “patterns” to infer the sequence of future events. The gambler’s fallacy is significantly responsible for the fact that the optimal structure of a portfolio is considered in only 37.7% of all choices made by an investor.


Behavioral finance Experiments Portfolio choice Non-optimal diversification Herding Guru Status-quo bias Gambler’s fallacy 

JEL Classification

G02 G11 D81 D84 



We thank the editor and anonymous referees for their helpful and detailed comments, which enormously improved the quality of the paper. We also thank the participants of the 4th International Meeting on Experimental and Behavioral Social Sciences (IMEBESS) at Universitat de Barcelona 2017 for some very constructive comments.


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Copyright information

© Swiss Society for Financial Market Research 2018

Authors and Affiliations

  • Ibrahim Filiz
    • 1
  • Thomas Nahmer
    • 2
  • Markus Spiwoks
    • 1
    Email author
  • Kilian Bizer
    • 2
  1. 1.Faculty of BusinessOstfalia University of Applied SciencesWolfsburgGermany
  2. 2.Faculty of Economic SciencesGeorg August University GöttingenGöttingenGermany

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