Antiherding in Financial Decision Increases Valuation of Return on Investment: An Event-Related Potential Study

Abstract

Using event-related potentials, this study investigated how financial herding or antiherding affected the valuation of subsequent outcomes. For each trial, subjects decided whether to buy the stock according to its net money flow information which could be used to reflect the strength of buying power or selling power of the stock. The return on investment (ROI) as feedback included the increase or decrease percentage after subjects' responses. Results showed that, compared with herding, antiherding induced larger discrepancies of FRN and P300 amplitude between positive ROI and negative ROI, indicating that individuals under antiherding condition had stronger motivation and paid more attention in the evaluation process of ROI. Moreover, only for positive ROI, the amplitudes of FRN and P300 were modulated by two kinds of behaviors. We suggested that individuals making antiherd decisions were more confident with their own ability and choices, which reduced the positive outcome prediction error and gave more mental resources to evaluate positive outcome. However, negative outcomes evoked no different motivational meaning and negative emotion for individuals between herding and antiherding. The study may provide new insights into neurocognitive processes of herding and antiherding in financial market.

Confidence Modulates the Conformity Behavior of the Investors and Neural Responses of Social Influence in Crowdfunding

“…In other words, people do not always consistently follow suit. They may insist on their own choices independently of the choices or opinions of others and even exhibit anticonformity behaviors, i.e., contradict the behaviors of the groups ( Effinger and Polborn, 2001 ; Levy, 2004 ; Chen et al, 2010b ; Wang et al, 2017 ). For example, Wang et al (2017) find participants sometimes do not buy the stock that has been bought by more people or buy the stock even its buying power is lower.…”

“…They may insist on their own choices independently of the choices or opinions of others and even exhibit anticonformity behaviors, i.e., contradict the behaviors of the groups ( Effinger and Polborn, 2001 ; Levy, 2004 ; Chen et al, 2010b ; Wang et al, 2017 ). For example, Wang et al (2017) find participants sometimes do not buy the stock that has been bought by more people or buy the stock even its buying power is lower. The authors speculate that individuals making antiherd decisions might be more confident in their ability and choices ( Wang et al, 2017 ).…”

“…For example, Wang et al (2017) find participants sometimes do not buy the stock that has been bought by more people or buy the stock even its buying power is lower. The authors speculate that individuals making antiherd decisions might be more confident in their ability and choices ( Wang et al, 2017 ). Why does not social influence always work?…”