Portfolio diversification: the influence of herding,status-quo bias,and the gambler’s fallacy |
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Authors: | Ibrahim Filiz Thomas Nahmer Markus Spiwoks Kilian Bizer |
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Institution: | 1.Faculty of Business,Ostfalia University of Applied Sciences,Wolfsburg,Germany;2.Faculty of Economic Sciences,Georg August University G?ttingen,G?ttingen,Germany |
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Abstract: | This experimental study examines the influence of herding following the majority of fellow gamblers or the most successful gambler (guru)], status-quo bias, and the gambler’s fallacy on diversification behavior. We find that neither herding nor status-quo bias contributes significantly to non-optimal portfolio choices. The gambler’s fallacy, however, plays an important role in these decisions. Many subjects appear to find patterns in a history of random events and then use these “patterns” to infer the sequence of future events. The gambler’s fallacy is significantly responsible for the fact that the optimal structure of a portfolio is considered in only 37.7% of all choices made by an investor. |
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