Start Small and Stay Small : Anchoring Bias in App-Based Investing

Stock trading apps have encouraged millions of people to begin micro-investing. While there is no doubt that investing is beneficial in the long-run, we demonstrate a downside to the micro-investing trend. Using a novel data set of stock trades from an app-based broker, we show that anchoring bias leads to significantly lower wealth accumulation when investors start their journey with a small first purchase. A unique feature of the broker’s platform allows us to disentangle anchoring from a rational repetition strategy: stock gift cards. Since the value of a stock gift card is determined exogenously, the amount of that gift card represents a true external anchor. Over one year, a $1 increase in the amount of an investor's initial stock purchase results in a $4.70 increase in the total amount that an investor contributes to their investment account, all else equal