The Repurchase Behavior of Individual Investors: An Experimental Investigation

We analyze two recently documented follow-on purchase and repurchase patterns experimentally: Individual investors’ preference for purchasing additional shares of a stock that decreased rather than increased in value succeeding an initial purchase (pattern 1) and investors’ tendency for purchasing stocks that they previously sold at a higher price (pattern 2). Similar to the field data study by Odean, Strahilevitz, and Barber (2004), subjects in our experiment are about 2.5 to 3 times as likely to purchase units of a single fictitious good if the price of the good declined following a purchase or sale in the previous period. As an assignment of choices clearly reduces the effect, we ar-gue that investors are involved in counterfactual thinking: They refrain from purchasing additional shares or repurchasing shares at a higher price because doing so means admitting to their ex post wrong decision.

How do Markets React to Fundamental Shocks? An Experimental Analysis on Underreaction and Momentum

We perform a market experiment to investigate how average transaction prices react to the arrival of new information. Following a positive shock in fundamental value, prices underreact strongly; following negative shocks we find evidence of a much less pronounced underreaction. After the shock, prices in both situations slowly drift towards the new fundamental value, leading to a characteristic momentum pattern. Controlling for investors’ individual disposition effects we form high and low disposition markets and prove both underreaction and momentum to be stronger in the high disposition group. While evidence is mainly in favor of Grinblatt and Han (2005), we conclude based on our underreaction finding that positive and negative shocks are not two sides of the same coin and encourage future studies to disentangle the asymmetry between the two situations more carefully.

An Individual Level Analysis of the Disposition Effect: Empirical and Experimental Evidence

The disposition effect describes investors’ common tendency of quitting a winning investment too soon and holding on to losing investments too long (Shefrin and Statman 1985). Our paper analyses individual level disposition effects using both account level field data as well as a controlled laboratory experiment. While we observe the disposition effect on aggregate, the extent to which a single decision maker is affected varies considerably across investors. We find overwhelming evidence for relative stability of individual disposition effects both within and across tasks, as well as across time. Learning, nevertheless, attenuates the magnitude of the effect strongly both within tasks and over time. In accordance with prior research, we also document that frequent traders sell their winners less and their losers more often, resulting in lower disposition effects.

Reference Point Formation Over Time: A Weighting Function Approach

Although the concept of reference point dependent preferences has been adopted to almost all fields of behavioral economics, especially marketing and behavioral finance, we still know very little about how decision makers form their reference points given a sequence of prices. Our paper provides both a theoretical framework on reference point formation over time, based on cumulative prospect theory’s s-shaped weighting function, and a new experimental method for eliciting subjects’ individual reference points in a finance context. Consistent with our model, we document our subjects’ reference points to be best described by the first and the last price of the time series, with the equally weighted average and the highest price receiving smaller weights.. Results, however, vary strongly on the individual level and are also affected by the elicitation question applied.

Droplet Ripening in Concentration Gradients

Living cells use phase separation and concentration gradients to organize chemical compartments in space. Here, we present a theoretical study of droplet dynamics in gradient systems. We derive the corresponding growth law of droplets and find that droplets exhibit a drift velocity and position dependent growth. As a consequence, the dissolution boundary moves through the system, thereby segregating droplets to one end. We show that for steep enough gradients, the ripening leads to a transient arrest of droplet growth that is induced by an narrowing of the droplet size distribution.Comment: 12 pages, 4 figure