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summit video
Why Are Individuals Reluctant to Realize Their Losses?
Title: Why Are Individuals Reluctant to Realize Their Losses?
Principal Investigator: B. Douglas Bernheim
Dates: November 1, 2013 - October 31, 2015
Sponsor: Russel Sage Foundation
Abstract: Evidence from finance, organizational behavior, sociology and psychology suggest that, individuals exhibit a reluctance to realize their losses i.e. exhibit the disposition effect, escalation of commitment, etc. Understanding the causes of such behavior is important to guide theories that microfound behavior, but also in prescribing policy recommendations to overcome them. In a controlled laboratory setting, I investigate the potential causes of such behavior in a general context. Subjects self-select into 'stocks' about which they possess differential priors about their success likelihood. The design allows me to continuously parameterize and manipulate responsibility, in order to tell between pure preference against loss realization versus ego utility theories. In addition, I elicit subjects' beliefs to test for belief based theories and their correlation with other metrics.
Abstract: Evidence from finance, organizational behavior, sociology and psychology suggest that, individuals exhibit a reluctance to realize their losses i.e. exhibit the disposition effect, escalation of commitment, etc. Understanding the causes of such behavior is important to guide theories that microfound behavior, but also in prescribing policy recommendations to overcome them. In a controlled laboratory setting, I investigate the potential causes of such behavior in a general context. Subjects self-select into 'stocks' about which they possess differential priors about their success likelihood. The design allows me to continuously parameterize and manipulate responsibility, in order to tell between pure preference against loss realization versus ego utility theories. In addition, I elicit subjects' beliefs to test for belief based theories and their correlation with other metrics.