Structural Estimation of Past and Future Regret Preferences in an Optimal Stopping Experiment

Using trader-level data, we examine the impact of the stock-specific endogenous reference points, the 'realized-return' and the 'peak-return' of the prior round on the selling propensity in a subsequent investment round in the same asset. The selling propensity rises significantly near the endogenous reference points. The significance is greater when the holding period is relatively shorter and when the time gap between the consecutive rounds is lower, implying a recency effect. Finally, the impact is more substantial on traders holding fewer stocks. The results imply that traders' prior stock-specific experience plays a significant role in the reference point formation.

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Influence of endogenous reference points on the selling decisions of retail investors

Bansal

Jacob

Pandey

2021

Euro Fin Management

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Too Proud to Stop: Regret in Dynamic Decisions

Viefers

Strack²

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. optimal choice in an optimal stopping task. We derive the optimal strategy under such regret preferences, and show how it is different from that of an expected utility maximizer. We also show that if the decision maker never commits mistakes the behavior resulting from this strategy is observationally equivalent to that of an expected utility maximizer. Terms of use: Documents inWe then test our theoretical predictions in the laboratory. The results from a structural discrete choice model we fit to our data provide strong evidence that many people's stopping behavior is largely determined by the anticipation of and aversion to regret.JEL-Classification: D03, C91

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Make Hay While the Sun Shines: An Empirical Study of Maximum Price, Regret and Trading Decisions

2020

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Structural Estimation of Past and Future Regret Preferences in an Optimal Stopping Experiment

Cited by 3 publications

References 16 publications

Influence of endogenous reference points on the selling decisions of retail investors

Influence of endogenous reference points on the selling decisions of retail investors

Too Proud to Stop: Regret in Dynamic Decisions

Make Hay While the Sun Shines: An Empirical Study of Maximum Price, Regret and Trading Decisions

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