Can Regret and Pride explain the Disposition Effect?

We experimentally investigated the role of regret and pride in a behavioral anomaly, the disposition effect. First, we used affective forecasting to elicit participants potential feelings in hypothetical investment situations. Then our subjects participated in a two period stock market simulation, consisting of similar investment decisions. We linked the participants’ reports of regret and pride to the trading behavior consistent with the disposition effect and found that higher reports of regret support the disposition effect in the domain of losses and higher reports of pride support the disposition effect in the domain of gains.