Using German and US brokerage data we find that investors are more likely to sell speculative stocks trading at a gain. Investors' gain realizations are monotonically increasing in a stock's speculativeness. This translates into a high disposition effect for speculative and a much lower...

Behavioral economics characterizes decision-makers using psychologically-informed models. Cognitive science produces psychologically-informed models. Why don't these disciplines talk more? Here, the author presents several arguments for why cognitive science should inform behavioral economics -...

This paper investigates the efficiency of household investment decisions in a unique dataset containing the disaggregated wealth and income of the entire population of Sweden. The analysis focuses on two main sources of inefficiency in the financial portfolio: underdiversification of risky...

We propose a framework where perceptions of uncertainty are driven by the interaction between cognitive constraints and the way that people learn about it--whether information is presented sequentially or simultaneously. People can learn about uncertainty by observing the distribution of...

This paper develops an asset market based test for preference for the timing of resolution of uncertainty. Our main theorem provides a characterization of preference for early resolution of uncertainty in terms of the risk premium of assets realized during the period when the informativeness of...

Collateral requirements play an important role in credit markets. This paper shows that the endowment effect--the phenomenon where owing a good increases one's valuation of it--inhibits demand for loans which use a borrower's existing assets as collateral. Using a field experiment in Kenya, we...

In this paper, we introduce a new Bayesian approach to explain some market anomalies during financial crises and subsequent recovery. We assume that the earnings shock of an asset follows a random walk model with and without drift to incorporate the impact of financial crises. We further assume...

Microeconomic modeling of investors behavior in financial markets and its results crucially depends on assumptions about the mathematical shape of the underlying preference functions as well as their parameterizations. With the purpose to shed some light on the question, which preferences...

We consider the demand for state contingent claims in the presence of a zero-mean, nonhedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show...

We report strong evidence that changes of momentum, i.e. "acceleration", defined as the first difference of successive returns, provide better performance and higher explanatory power than momentum. The corresponding Γ-factor explains the momentum-sorted portfolios entirely but not the reverse....