 Nudging against panic selling: Making use of the IKEA effectAmin Zokaei Ashtiani, Marc Oliver Rieger and David Stutz Journal of Behavioral and Experimental Finance, 2021, vol. 30, issue C Abstract: A typical behavioral pattern of investors is to reduce stock market exposure after a crash. This leads to a typical “buy high, sell low” strategy that is detrimental to long-run wealth accumulation. We suggest a simple nudge based on the IKEA effect and the endowment effect that reduces this problem substantially: actively involving investors in the selection process of the risky investments, while restricting their selections in a way that preserves a large degree of diversification. The “self-assembled” portfolio is, indeed, less likely to be sold off: in an experiment with N=219 university students, we show that this nudge reduces panic selling significantly. In fact, it makes a difference that is at least as big as the difference between experienced and inexperienced investors. Keywords: IKEA effect; Endowment effect; Familiarity bias; Household finance; Strategic asset allocation; Behavioral biases; Nudging (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:30:y:2021:i:c:s2214635021000460 DOI: 10.1016/j.jbef.2021.100502 Access Statistics for this article Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber More articles in Journal of Behavioral and Experimental Finance from Elsevier |
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