Debiasing the disposition effect by reducing the saliency of information about a stock's purchase price

Cary Frydman and Antonio Rangel

Journal of Economic Behavior & Organization, 2014, vol. 107, issue PB, 541-552

Abstract: The disposition effect refers to the empirical fact that investors have a higher propensity to sell risky assets with capital gains compared to risky assets with capital losses, and it has been associated with low trading performance. We use a stock trading laboratory experiment to investigate if it is possible to reduce subjects’ tendency to exhibit a disposition effect by making information about a stock's purchase price, and thus about capital gains and losses, less salient. We compare two experimental conditions: a high-saliency condition in which the purchase price of a stock is prominently displayed by the trading software, and a low-saliency condition in which it is not displayed at all. We find that individuals exhibit a disposition effect in the high-saliency condition, and that the effect is 25% smaller in the low-saliency condition. This suggests that it is possible to debias the disposition effect by reducing the saliency with which information about a stock's purchase price is displayed on financial statements and online trading platforms.

Keywords: Debiasing; Disposition effect; Attention; Behavioral finance; Realization utility; Decision mistakes (search for similar items in EconPapers)
JEL-codes: G02 G11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:107:y:2014:i:pb:p:541-552

DOI: 10.1016/j.jebo.2014.01.017

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