Journal of the Academy of Marketing Science

, Volume 33, Issue 4, pp 486–503 | Cite as

Blowing bubbles: Heuristics and biases in the run-up of stock prices

  • Joseph Johnson
  • Gerard J. Tellis


Ads of stocks and mutual funds typically tout their past performance, despite a disclosure that past performance does not guarantee future returns. Are consumers motivated to buy or sell based on past performance of assets? More generally, do consumers (wrongly) use sequential information about past performance of assets to make suboptimal decisions? Use of this heuristic leads to two well-known biases: the hot hand and the gambler’s fallacy. This study proposes a theory of hype that integrates these two biases; that a positive run could inflate prices, while a negative run could depress them, although the pattern could reverse on extended runs. Tests on two experiments and one event study of stock purchases strongly suggest that consumers dump “losers” and buy “winners.” The latter phenomenon could lead to hyped-up prices on the stock market for winning stocks. The authors discuss the managerial, public policy, and research implications of the results.


heuristics and biases financial products behavioral decision theory judgment and decision making 


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Copyright information

© Academy of Marketing Science 2005

Authors and Affiliations

  • Joseph Johnson
    • 1
  • Gerard J. Tellis
    • 2
  1. 1.University of MiamiMiamiUSA
  2. 2.University of Southern CaliforniaLos Angeles

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