Research Diary

Tidbits from behavioral economics: What counts as a gain or a loss is relative to prior prices, not considered as independent of an investor’s attention. A stock acquired at $50 and and acheives a year-end value of $100. A few months into the new year it is sold at $75. While this is objectively a $25 gain, the investor likely feels as if there was a loss. One classic decision-making bias Nobel Laureate Daniel Kahneman and Amos Tversky identifed is this effect, called anchoring and adjustment.