Once burned, twice shy: How naive learning, counterfactuals, and regret affect the repurchase of stocks previously sold

Journal of Marketing Research

Volumn 48, Issue SPEC. ISSUE, 2011, Pages

  Strahilevitz, Michal Ann ^a   Odean, Terrance ^b   Barber, Brad M ^c  

^a GOLDEN GATE UNIVERSITY   (United States)

^b UNIVERSITY OF CALIFORNIA   (United States)

^c UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

Counterfactuals; Disappointment; Individual investors; Regret

Indexed keywords

EID: 82955219809     PISSN: 00222437     EISSN: None     Source Type: Journal    
DOI: 10.1509/jmkr.48.SPL.S102     Document Type: Article

References (57)

1. Ackert, Lucy and Richard Deaves (2010), Behavioral Finance: Psychology, Decision-Making and Markets. Mason, OH: Cengage Publishing.
2. Arkes, Hal, Yi-Han Kung, and Laura Hutzel (2002), "Regret, Valuation, and Inaction Inertia," Organizational Behavior and Human Decision Processes, 87(2), 371-85.
3. Barber, Brad M., Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean (2007), "Is the Aggregate Investor Reluctant to Realize Losses? Evidence from Taiwan," European Financial Management, 13(3), 423-47.
4. -, -, -, and - (2009), "Just How Much Do Investors Lose from Trade?" Review of Financial Studies, 22(2), 609-632.
5. - and Terrance Odean (2000), "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, 55(2), 773-806.
6. - and - (2001), "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment," Quarterly Journal of Economics, 116(1), 261-92.
7. -, -, and Ning Zhu (2009), "Systematic Noise," Journal of Financial Markets, 12(4), 547-69.
8. Barberis, Nicholas and Wei Xiong (2009), "What Drives the Disposition Effect? An Analysis of a Long-Standing Preference-Based Explanation," Journal of Finance, 64(2), 751-84.
9. Baucells, Manel, Martin Weber, and Frank Welfens (2011), "Reference Point Formation and Updating," Management Science, 57 (March), 506-519.
10. Bell, David (1982), "Regret in Decision Making Under Uncertainty," Operations Research, 30(5), 961-81.
11. - (1985), "Disappointment in Decision Making Under Uncertainty," Operations Research, 33(1), 1-27.
12. Carhart, Mark (1997), "On Persistence in Mutual Fund Performance," Journal of Finance, 52(1), 57-82.
13. Choi, James, David Laibson, Brigitte Madrian, and Andrew Metrick (2009), "Reinforcement Learning and Savings Behavior," Journal of Finance, 64(6), 2515-34.
14. Cox, D. R. (1972), "Regression Models and Life-Tables" Journal of the Royal Statistical Society, 34(2), 187-220.
15. De, Sankar, Naveen R. Gondhi, and Bhimasankaram Pochiraju (2010), "Does Sign Matter More than Size? An Investigation into the Source of Investor Overconfidence," working paper, Indian School of Business.
16. Dhar, Ravi and Ning Zhu (2006), "Up Close and Personal: An Individual Level Analysis of the Disposition Effect," Management Science, 52(5), 726-40. (Pubitemid 43666194)
17. Daniel, Kent, David Hirshleifer, and Avanidhar Subramahmanyam (1998), "Investor Psychology and Security Market Under-and Over-Reactions," Journal of Finance, 53(6), 1839-85. (Pubitemid 128639703)
18. Elster, Jon (1998), "Emotions and Economic Theory," Journal of Economic Literature, 36 (March), 47-74. (Pubitemid 128461585)
19. Fama, Eugene F. and Kenneth R. French (1993), "Common Risk Factors in Returns on Stocks and Bonds," Journal of Financial Economics, 33(1), 3-56.
20. Feng, Lei and Mark S. Seasholes (2005), "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?" Review of Finance, 9(3), 305-351. (Pubitemid 41312582)
21. Festinger, Leon (1957), A Theory of Cognitive Dissonance. Stanford, CA: Stanford University Press.
22. Fujikawa, Yoshinori, Keith Niedermeier, and William Ross Jr. (2006), "Inaction Inertia and the Role of Experienced and Anticipated Regret," working paper, Pennsylvania State University.
23. Grinblatt, Mark and Matti Keloharju (2001), "What Makes Investors Trade?" Journal of Finance, 56(2), 589-615.
24. Hens, Thorsten and Martin Vlcek (2005), "Does Prospect Theory Explain the Disposition Effect?" working paper, University of Zurich.
25. Inman, J. Jeffrey, James S. Dyer, and Jianmin Jia (1997), "A Generalized Utility Model of Disappointment and Regret Effects on Post-choice Valuation," Marketing Science, 16(2), 97-111.
26. Ivkovic, Zoran, James Poterba, and Scott Weisbenner (2005), "Tax-Motivated Trading by Individual Investors," American Economic Review, 95(5), 1605-30. (Pubitemid 43550746)
27. Jackson, Andrew (2003), "The Aggregate Behavior of Individual Investors," working paper, London Business School.
28. Jegadeesh, Narasimhan and Sheridan Titman (1993), "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, 48(1), 65-91.
29. Kahneman, Daniel (1995), "Varieties of Counterfactual Thinking," in What Might Have Been: The Social Psychology of Counterfactual Thinking, Neal J. Roese and James M. Olson, eds. Hillsdale, NJ: Lawrence Erlbaum Associates, 375-96.
30. - and Dale T. Miller (1986), "Norm Theory: Comparing Reality to its Alternatives," Psychological Review, 93(2), 136-53.
31. - and Amos Tversky (1979), "Prospect Theory: An Analysis of Decision Under Risk," Econometrica, 47(2), 263-91.
32. - and - (1982), "The Simulation Heuristic," in Judgment Under Uncertainty: Heuristics and Biases, Daniel Kahneman, Paul Slovic, and Amos Tversky, eds. Cambridge: Cambridge University Press, 201-208.
33. Kaustia, Markku (2010), "Prospect Theory and the Disposition Effect," Journal of Financial and Quantitative Analysis, 45(4), 791-812.
34. - and Samuli Knupfer (2008), "Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions," Journal of Finance, 63(6), 2679-702.
35. Li, Yan and Liyan Yang (2009), "Prospect Theory, the Disposition Effect and Asset Prices," working paper, Cornell University.
36. Loewenstein, George (2000), "Emotions in Economic Theory and Economic Behavior," American Economic Review, 90(2), 426-32.
37. Loomes, Graham, and Robert Sugden (1982), "Regret Theory: An Alternative Theory of Rational Choice Under Uncertainty," Economic Journal, 92(368), 805-824.
38. - and - (1986), "Disappointment and Dynamic Consistency in Choice Under Uncertainty," Review of Economic Studies, 53(2), 271-82.
39. Malmendier, Ulrike and Stephan Nagel (2011), "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?" Quarterly Journal of Economics, 126(1), 373-416.
40. Mellers, Barbara and Peter McGraw (2001), "Anticipated Emotions as Guides to Choice," Current Directions in Psychological Science, 10(6), 210-14. (Pubitemid 33391398)
41. -, Alan Schwartz, Katty Ho, and Ilana Ritov (1997), "Decision Affect Theory: Emotional Reactions to the Outcomes of Risky Options," Psychological Science, 8(5), 423-29.
42. -, -, and liana Ritov (1999), "Emotion-Based Choice," Journal of Experimental Psychology, 128(3), 332-45.
43. Muermann, Alexander and Jacqueline Volkman (2006), "Regret, Pride, and the Disposition Effect," paper presented at American Finance Association Meetings, Boston.
44. Odean, Terrance (1998), "Are Investors Reluctant to Realize Their Losses?" Journal of Finance, 53(5), 1775-79.
45. - (1999), "Do Investors Trade too Much?" American Economic Review, 89(5), 1279-98.
46. Roese, Neal J. and James M. Olson (1995), "Counterfactual Thinking: A Critical Overview," in What Might Have Been: The Social Psychology of Counterfactual Thinking, Neal J. Roese and James M. Olson, eds. Hillsdale, NJ: Lawrence Erlbaum Associates, 1-55.
47. Seru, Amit, Tyler Shumway, and Noah Stoffman (2010), "Learning by Trading," Review of Financial Studies, 23(2), 705-739.
48. Shefrin, Hersh and Meir Statman (1985), "The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, 40(3), 777-90.
49. Shumway, Tyler and Guojun Wu (2005), "Does Disposition Drive Momentum?" working paper, University of Michigan.
50. Summers, Barbara and Darren Duxbury (2007), "Unraveling the Disposition Effect: The Role of Prospect Theory and Emotions," working paper, Leeds University Business School.
51. Thaler, Richard (1985), "Mental Accounting and Consumer Choice," Marketing Science, 4(3), 199-214.
52. Tsiros, Michael (2009), "Releasing the Regret Lock: Consumer Response to New Alternatives After a Sale," Journal of Consumer Research, 35(6), 1039-1059.
53. - and Vikas Mittal (2000), "Regret: A Model of Its Antecedents and Consequences in Consumer Decision Making," Journal of Consumer Research, 26(4), 401-417.
54. Tykocinski, Orit and Thane Pittman (1998), "The Consequences of Doing Nothing: Inaction Inertia as Avoidance of Anticipated Counterfactual Regret," Journal of Personality and Social Psychology, 75(3), 607-616. (Pubitemid 128140250)
55. - and - (2001), "Product Aversion Following a Missed Opportunity: Price Contrast or Avoidance of Anticipated Regret?" Basic and Applied Social Psychology, 23(3), 149-56.
56. -, -, and Erin Tuttle (1995), "Inaction Inertia: Foregoing Future Benefits as a Result of an Initial Failure to Act," Journal of Personality and Social Psychology, 68(5), 793-803.
57. Weber, Martin and Frank Welfens (2011), "The Follow-On Purchase and Repurchase Behavior of Individual Investors: An Experimental Investigation," Die Betriebswirtschaft, 71(2), 139-54.