The Disposition Effect when Deciding on Behalf of Others

This article presents experimental evidence on the disposition effect for the case where a subject decides on behalf of another person. In our setting, trading effort can only be affected by subjects’ intrinsic motivation, since trading actions only influence the profits of a matched person. However, in our control treatment, trades have a direct influence on subjects’ profits. We find that trading on behalf of others amplifies disposition effects when subjects have no experience. By contrast, no significant differences exist when subjects are experienced. Inexperienced subjects, characterized by a greater concern for others, cause this treatment effect. Thus, trading responsibility results in an emotional burden for subjects without experience and this leads to weak trading performance. Our findings add interesting insights for management practices in delegated decisions, as they highlight that when investors are inexperienced, prosociality may hinder trading efficiency.

Source: Journal of Economic Psychology - July 13, 2019 Category: Psychiatry & Psychology Source Type: research