The Effect of Prior Choices on Expectations and Subsequent Portfolio Decisions

Camelia Kuhnen, Sarah Rudorf and Bernd Weber

No 23438, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document that prior portfolio choices influence investors' expectations about asset values, and their future choices. We find that people update more from information consistent with their prior choices, leading to sticky portfolios over time. These effects are related to how the brain's valuation centers encode new information about assets and about the trader's own success. These findings provide microfoundations for theoretical models where agents learn jointly about their skill and about asset values, leading to disagreement, and offer a common explanation for several puzzling investor behaviors, specifically, households' low stock market participation rate, and the disposition and repurchase effects.

JEL-codes: G02 G11 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-dcm
Note: AP
References: View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.nber.org/papers/w23438.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:23438

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23438

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().