Stakes and investor behaviors

Pengfei Sui and Baolian Wang

Journal of Financial Economics, 2025, vol. 172, issue C

Abstract: We examine how stakes affect investor behaviors. In our unique setting, investors trade stocks in real accounts using their own money and simultaneously in a simulated setting. Our real-world within-investor estimation shows that investors exhibit stronger biases and perform worse in higher-stakes real accounts than in lower-stakes simulated accounts. Investors exhibit strong biases in both types of accounts, and the biases in both are strongly positively correlated. Such behavioral consistency suggests that low-stakes experiments are informative about real-world behaviors. Using additional account-level datasets, we demonstrate external validity by documenting a stronger (reverse) disposition effect on stocks (funds) with greater portfolio weights.

Keywords: Stakes; Behavioral biases; Individual investors; Household finance (search for similar items in EconPapers)
JEL-codes: C91 D91 G41 G50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:172:y:2025:i:c:s0304405x25001540

DOI: 10.1016/j.jfineco.2025.104146

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