Does Social Comparison Reduce Investors' Disposition Effect? Evidence from an Experimental Analysis

This paper conducts a laboratory experiment to assess the impact of social comparisons on the disposition effect. We set up two types of interventions on social comparisons to specifically explore two questions that appeal to us: on the one hand, manipulating the sensitivity of financial disclosures to explore whether embracing social comparisons in different degrees influences investors’ disposition effects differently, and on the other hand, introducing financial role models to investigate the impact of upward identification. The results of the experiment confirm that both measures can weaken investors’ disposition effect by increasing their propensity to realize losses and decreasing their propensity to realize profits. Specifically, highly sensitive financial disclosure reduces the mean value of DE by 41.08% and the mean value of α-measure by 36.81% compared to the control condition of disclosing low-sensitivity financial information. And the presence of financial role models decreases the mean value of DE by 51.04% and the mean value of the α-measure by 50.13% compared to the control condition that financial role models are absent