Framing Effects on Asset Markets - An Experimental Analysis -

Erich Kirchler, Boris Maciejovsky and Martin Weber
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Erich Kirchler: University of Vienna, Department of Psychology, Postal: Universitätsstr. 7, A-1010 Vienna

No 01-09, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper investigates four hypotheses which are inconsistent with expected utility theory, but may well be explained by prospect theory. It deals with framing, the non-linearity of subjective probabilities, the disposition effect, and the correspondence of different experimental risk elicitation methods. Overall, 64 participants traded two assets on eight markets in a computerized continuous double auction. The results (i) indicate that the framing of information influenced individual trading behavior and asset holdings. However (ii), the variation of the probability of the framed information had no influence on trading volume. In addition, the results (iii) confirm the disposition effect. Participants who experienced a gain sold their assets more rapidly than participants who experienced a loss. In line with previous empirical results, we (iv) found little correspondence between different experimental risk elicitation methods.

Pages: 21 pages
Note: The authors acknowledge financial support by the University of Vienna under the project title
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Working Paper: Framing effects on asset markets: An experimental analysis (2001)
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