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Growth and decline of assets: On biased judgments of asset accumulation and investment decisions
Stockholm University, Faculty of Social Sciences, Department of Psychology.
Stockholm University, Faculty of Social Sciences, Department of Psychology. Decision Research, Oregon, USA.
2014 (English)In: Polish Psychological Bulletin, ISSN 0079-2993, Vol. 45, no 1, 29-35 p.Article in journal (Refereed) Published
Abstract [en]

Previous research showed that accumulations of capital following stationary interest rates are underestimated byhuman judges. Hyperbolic discounting was suggested as a descriptive and explanatory model for this phenomenon. First,we investigated judged accumulated capital after a period of annual growth and decline. The degree of underestimationincreased with accumulated growth and the results supported hyperbolic discounting as a descriptive model on the grouplevel. However, the hyperbolic model did not apply to the data for one third of the participants. Second, we investigatedhow investment decisions were related to capital accumulation before the investments and to judgments of the possibleoutcomes of the future investments. To our surprise, the participants’ judgments of expected future accumulated capitaldid not add predictive power to predictions based on whether there was growth or decline before the investment decision.Unfortunately this strategy leads to suboptimal investment decisions.

Place, publisher, year, edition, pages
2014. Vol. 45, no 1, 29-35 p.
Keyword [en]
investment decisions, discounting, uncertainty, growth, decline
National Category
Psychology Applied Psychology
Research subject
URN: urn:nbn:se:su:diva-102579DOI: 10.2478/ppb-2014-0005OAI: diva2:711360
Available from: 2014-04-10 Created: 2014-04-10 Last updated: 2014-04-10Bibliographically approved

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