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Neural Evidence of Regret and Its Implications for Investor Behavior

Frydman, Cary and Camerer, Colin (2016) Neural Evidence of Regret and Its Implications for Investor Behavior. Review of Financial Studies, 29 (11). pp. 3108-3139. ISSN 0893-9454. http://resolver.caltech.edu/CaltechAUTHORS:20161209-082708289

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Abstract

We use neural data collected from an experimental asset market to measure regret preferences while subjects trade stocks. When subjects observe a positive return for a stock they chose not to purchase, a regret signal is observed in an area of the brain that is commonly active during reward processing. Subjects are unwilling to repurchase stocks that have recently increased in price, even though this is suboptimal in our experiment. The strength of stock repurchasing mistakes is correlated with the neural measures of regret. Subjects with high rates of repurchasing mistakes also exhibit large disposition effects.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1093/rfs/hhw010DOIArticle
http://rfs.oxfordjournals.org/content/29/11/3108PublisherArticle
http://rfs.oxfordjournals.org/content/29/11/3108/suppl/DC1PublisherSupplementary Data
ORCID:
AuthorORCID
Camerer, Colin0000-0003-4049-1871
Additional Information:© 2016 The Author. Published by Oxford University Press on behalf of The Society for Financial Studies. Received April 28, 2015; accepted January 26, 2016 by Editor Stefan Nagel. First published online: February 26, 2016. We are grateful for comments from Nicholas Barberis, Phillip Bond, Peter Bossaerts, Campbell Harvey, Milica Mormann, Antonio Rangel, and seminar participants at Caltech, the University of Southern California, the University of Washington, the University of Western Ontario, the 2013 Miami Behavioral Finance Conference, and the 2013 Boulder Consumer Financial Decision-Making Conference. Financial support from the National Science Foundation (Camerer and Frydman) and from the Betty and Gordon Moore Foundation (Camerer) is gratefully acknowledged. Supplementary data can be found on The Review of Financial Studies web site.
Funders:
Funding AgencyGrant Number
NSFUNSPECIFIED
Gordon and Betty Moore FoundationUNSPECIFIED
Classification Code:JEL: G02; G11
Record Number:CaltechAUTHORS:20161209-082708289
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20161209-082708289
Official Citation:Cary Frydman and Colin Camerer Neural Evidence of Regret and Its Implications for Investor Behavior Rev. Financ. Stud. (2016) 29 (11): 3108-3139 first published online February 26, 2016 doi:10.1093/rfs/hhw010
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:72685
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:09 Dec 2016 17:01
Last Modified:09 Dec 2016 17:01

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