Up Next

Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
May 1, 2017

The Effect of Prior Choices on Expectations and Subsequent Portfolio Decisions


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.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals. 

Download Publication View Working Paper View Publication on Journal Site

You may also be interested in: