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7/28/2019 Neural basis of the difference in financial decision making between retail and institutional investors
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Neuralbasisofthedifferencein
financialdecisionmakingbetween
retailandins8tu8onalinvestors
TimJausovec
05/28/2013
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Background
fMRIstudiesfocusonfinancialDMinretailinvestors(Kuhnen&Knutson,2005)
However,robustbehavioraldifferencesbetween
retailv.instuonal: Lossrealizaon(Frydmanetal.,2011;Barber&
Odean,2011)
Riskpreferences&poroliodiversificaon
(Danieletal.,2002;Eriksen&Kvaley,2009) Herdingbehaviour(Barberetal.,2009)
Underperformmarket(Barber&Odean,2000)
...Background
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Hypothesis
Severalhypothesiswhy...
Disposioneffect(Frydmanetal.,2010;Barber
etal.,2011)
Strategyvchoice(Venkatramanetal.,2007) Emoonalregulaon(Sokol-Hessneretal.,2009)
...makeprediconsthataretestable(only)through
fMRI
3Hypothesis
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4
Anticipation Choice Wait
Market Hold or Sell Outcome
Sell
Hold
Sell?
Methods
UndergoamodifiedversionofBehavioral
InvestmentAllocaGonTaskinthemagnet
Methods
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Methods
Experiment1:
IV:Stockreturns,
porNolio
DV:Influenceonbrain
acGvaGon&behavior
Experiment2:
IV:BrainacGvaGon,
behavior
DV:Investortype
Methods
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BehavioralResults(projected)
InsGtuGonalinvestorsrelaGvetoretail:
MiGgaGonoflossrealizaGon
Makelessmistakesoverall ParGcularly,lessrisk-aversionmistakes
Possiblymorerisk-seeking
Results
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euralResults(projected)
ROIs: PFC(vm,dlandm),Insula,Acc,PPC
PredicGons(basedonFrydmanetal.,2010):
Insula&AcchavedifferentGmings:Retail:LossrealizaGonduringoutcome
InsGtuGonal:LossrealizaGonduringmarket
dlPFCacGvatedininsGtuGonalbutnotretail vmPFCstableacrosscondiGons
Results
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Discussion
Lossaversion
Behavioral+brainacGvaGonGming
EmoGonalmiGgaGon brainacGvaGonmagnitude+Gming
Strategyv.choice Hardtoteaseapart,possibleconfound(evenin
Kuhnen&Knutson,2005)
Discussion
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ImplicaGons Thesefindingshavethefollowingimplicaonsfor
theory:
FirstfMRIstudyofeffectofinvestortypeonloss
realiza8oneffectsandpredictorypowerofbrain
ac8va8ononinvestortype
ShowstheimportanceoffMRI(asaproxytoNAcc,Insula
&PFCac8va8on)infinancialDMtogetatbehaviorally
hiddenDMvariables
andpracce: X%ofGDPlostduetomisalloca8onoffunds(Daniel,
2001)->understandingmechanism->mi8ga8ngdamage
Supportforprotec8ngretailinvestors
Implication
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TobeconGnued...
Sll,anumberofquesonsremaintoberesolved...
Predicnggoodvs.badinvestors
Strategyv.choiceasaconfound
Differencebetweeninvestortypes Effectsoverme
Naturev.nurture
10Future
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References
Barber&Odean,(2000).TheJournalofFinance,55(2),p.773-06.
Barberetal.,(2009).TheReviewofFinancialStudies,22(1),p.?.
Barber&Odean,(2011).Workingpaper.http://ssrn.com/abstract=1872211
Danieletal.,(2001).JournalofMonetaryEconomics,49,p.139-209.
Eriksen&Kvaloy,(2009).FinancMarkManag,24,p.159-170.
Frydmanetal.,(2011).Workingpaper.www.haas.berkeley.edu/groups/finance/ru_july11.pdf
Kuhnen&Knutson,(2005).Neuron,47,p.763-770.
Sokol-Hessneretal.,(2009).PNAS,106(130),p.5035-5040.
Venkatramanetal.,(2009).Neuron,62(4),p.593-602.
References
http://www.haas.berkeley.edu/groups/finance/ru_july11.pdfhttp://www.haas.berkeley.edu/groups/finance/ru_july11.pdfhttp://www.haas.berkeley.edu/groups/finance/ru_july11.pdf -
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QuesGons?
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Frydmanetal.,(2011)
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Frydmanetal.,(2011)
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Venkatramanetal.(2011)
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Outcome
Choice
Self Other
Self
Retail investors
(Kuhnen & Knutson,
2005*)
GP (Nicolle et al.,
2012; Leonhardt,
2011)
Other LP (James, 2012*) /
Contextmaers
* Indicates study of financial choice
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fMRImighthelp
otclearifforbeerorworse
Endowmenteffectdecrease(List,2009)
Myopiclossaversionincreases(Eriksen&Kvaley,
2009) Whatmechanism?
Prospecttheory(Daniel,2001)
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