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Previous outcomes and reference dependence: A meta study of repeated investment tasks with and without restricted feedback

By Astrid Hopfensitz


When investment is repeated, previous outcomes (winning/losing) as well as the current budget level (gain/loss domain) influence decisions. The first is related to the so-called "gamblers fallacy". The second to value function relative to some reference point. Both effects have been extensively studied, however not their interaction. We present a meta-study of five experiments initially conducted to investigate myopic-loss-aversion. We observe that investment is related to the number of previous winning rounds as well as to the current budget position relative to a reference point. These effects persist when the analysis is extended to settings with restricted flexibility concerning investment.

Topics: D81 - Criteria for Decision-Making under Risk and Uncertainty, G11 - Portfolio Choice; Investment Decisions, C91 - Laboratory, Individual Behavior
Year: 2009
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