The 'Write' Size of Trading Behavior: Overconfidence, Prices, and Bubbles in Experimental Asset Markets

Bogan, Vicki L.; Jankovic, Luka

doi:10.2139/ssrn.3201188

Cited by 2 publications

(2 citation statements)

References 44 publications

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“…Duca et al (2021) suggested that house price increases are not only because of the low-interest-rate environment and government efforts to support firms and households but also because of behavioral factors. It is known that increases in market overconfidence are associated with increases in average price and trading activities, contributing to speculative asset bubbles (Scheinkman and Xiong, 2003; Bucchianeri, 2011; Bogan and Jankovic, 2018), and that overconfidence changes with time (Aghazadeh et al , 2018). The same effect occurs with herd behavior (Avery and Zemsky, 1998; Bikhchandani and Sharma, 2000; Wang et al , 2018).…”

Section: Literature Reviewmentioning

confidence: 99%

Heuristics and cognitive biases in the housing investment market

Cascão

Quelhas²,

Cunha³

2022

IJHMA

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Purpose This paper aims to analyze the heuristics and cognitive biases described by behavioral finance in the investment decision-making process of Portugal’s housing market. Design/methodology/approach In a first step, the authors applied an exploratory factor analysis (EFA) to assess the impact of heuristics and cognitive biases on investors’ decision-making. In a second step, the authors run a structural equation model (SEM) diagram path to assess if the sociodemographic characteristics of housing market investors determine the identified heuristics and if the heuristics condition the investors’ investment criteria. Findings Herd behavior and the heuristics of representativeness, availability and anchoring influence the housing market’s investors’ behavior in their decision-making process. Investors with above-average income show higher levels of overconfidence. Investors showing higher levels of overconfidence also tend to be more sensitive to the house price under analysis for investment. Women tend to show higher levels of the availability and anchoring heuristic. In turn, housing market investors showing higher levels of availability and anchoring heuristic tend to be more sensitive to the price and location of the house under analysis for investment. Research limitations/implications The explained variance of the EFA is below 50%, and the root mean square of approximation of the SEM is above the threshold of 0.05. These indicators are evidence of the models’ fragility. Practical implications Governments and regulators can better prevent real estate bubbles if they monitor behavioral biases and heuristics of housing investors together with quantitative indicators. Realtors can profit from adapting their marketing strategy and commercial communication to investors of sociodemographic groups more prone to a specific type of heuristics. Originality/value To the best of the authors’ knowledge, this is the first study that combines the contributions of behavioral finance with Portugal’s housing investment market and the first study connecting heuristics to investment criteria.

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Section: Literature Reviewmentioning

confidence: 99%

Heuristics and cognitive biases in the housing investment market

Cascão

Quelhas²,

Cunha³

2022

IJHMA

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“…Signature size has been established as a measure of confidence (Bogan and Jankovic 2018;Zweigenhaft 1977;Zweigenhaft and Marlowe 1973;Warner and Sugarman 1986) and dominance (Jorgenson 1977;Mailhos et al 2016). Recently, research has also connected signature size to narcissism (Ham et al 2018;Mailhos et al 2016).…”

Section: Dishonesty Predictionmentioning

confidence: 99%

Digital signatures: a tool to prevent and predict dishonesty?

2020

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Dishonesty is prevalent and causes great damage to society. On an individual level, besides reaping rewards, it also carries a psychological cost for those who engage in it. This principle is used to make people more honest with behavioral interventions, one of them being the well-known 'signature nudge'. Digital transition in society has however led to changes in the way people sign, which may affect the effectiveness of this nudge. In two experiments, the current study investigates the relationship between digital signatures and honesty, building on previous research by examining novel signature types, the moderating role of personal characteristics, effect decay, and the predicting value of digital signature characteristics. Results show no effect of any signature intervention and no unilateral relation between digital signature characteristics and subsequent behavior. These findings contrast with earlier research and cast doubt on the use of signature interventions as a tool to prevent or predict dishonest behavior.

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The 'Write' Size of Trading Behavior: Overconfidence, Prices, and Bubbles in Experimental Asset Markets

Cited by 2 publications

References 44 publications

Heuristics and cognitive biases in the housing investment market

Heuristics and cognitive biases in the housing investment market

Digital signatures: a tool to prevent and predict dishonesty?

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