How does people's social attachment influence their investment decision? Using empathy to explain availability bias

Abstract

By conducting an online lab experiment simulating how investors work with their financial managers, we investigate how empathy influences investors’ decision to maintain the working relationship with their financial managers and how empathy influences the availability bias in investors’ decision-making. We found that investors’ affective empathy is positively related to the duration of the relationship between them and their managers, even though they may have just experienced a loss. Also, investors’ affective and cognitive empathy positively moderates their availability bias, which means that investors with high empathy are more sensitive to information from other people.

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