Disposition Effect and Tolerance to Losses in Stock Investment Decisions: An Experimental Study

Robson Braga and Luiz Paulo Lopes Fávero

Journal of Behavioral Finance, 2017, vol. 18, issue 3, 271-280

Abstract: This study aims to verify whether people tolerate losses within the self-established limit through an experimental methodological procedure. In addition, it aims to analyze the decision behavior in terms of the time they take to realize gains and losses, as a way to test the manifestation of the disposition effect. The experiment consists in decision to sell stock from 4 companies, 2 with potentially negative returns and 2 with positive returns. The participants demonstrated that they accept more losses than they had attested they would bear in advance and manifested the typical disposition effect, under which people sell the winning stock earlier than the losing stock. There was no difference between men and women in the manifestation of the disposition effect, and women performed worse because they had established lower bearable losses and higher required gains in advance.

Date: 2017
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DOI: 10.1080/15427560.2017.1308946

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