Article2014

Asymmetric Learning from Financial Information

226 citations0/0 files storedThe Journal of Finance

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Decision-Making and Behavioral Economics Financial Markets and Investment Strategies Financial Literacy, Pension, Retirement Analysis

Abstract

ABSTRACT This study asks whether investors learn differently from gains versus losses. I find experimental evidence that indicates that being in the negative domain leads individuals to form overly pessimistic beliefs about available investment options. This pessimism bias is driven by people reacting more to low outcomes in the negative domain relative to the positive domain. Such asymmetric learning may help explain documented empirical patterns regarding the differential role of poor versus good economic conditions on investment behavior and household economic choices.

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References

1979Prospect Theory: An Analysis of Decision under Risk 1988Prospect theory: An analysis of decision under risk n.d.A model of investor sentiment /1998Are Investors Reluctant to Realize Their Losses?1989Why Does Stock Market Volatility Change Over Time?1998A model of investor sentiment1We are grateful to the NSF for financial support, and to Oliver Blanchard, Alon Brav, John Campbell (a referee), John Cochrane, Edward Glaeser, J.B. Heaton, Danny Kahneman, David Laibson, Owen Lamont, Drazen Prelec, Jay Ritter (a referee), Ken Singleton, Dick Thaler, an anonymous referee, and the editor, Bill Schwert, for comments.1 2000Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies 2011Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?*

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