Optimal stopping decisions and the disposition effect

Yongkil Ahn

Journal of Behavioral and Experimental Finance, 2024, vol. 42, issue C

Abstract: I conduct lab-in-the-field experiments using a stylized optimal stopping problem, through which I separately identify the exact threshold values for the disposition effect in the gain and loss domains. I further combine the experimental results with actual account-level trading records. Remarkably, I discover that solely the disposition effect indicator within the gain domain exhibits a positive correlation with the actual disposition effect observed in the stock market. This asymmetry in financial decision-making between the gain and loss domains suggests that individual investors may render suboptimal decisions primarily when confronted with gains.

Keywords: Disposition effects; Optimal stopping; Lab-in-the-field experiments (search for similar items in EconPapers)
JEL-codes: D83 D90 G40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:42:y:2024:i:c:s2214635024000534

DOI: 10.1016/j.jbef.2024.100938

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