Why Do Individuals Exhibit Investment Biases?
Stephan Siegel, University of Washington
14th Sep 2012 11:30 am - Room 214/215, H69 - Economics and Business Building
We find that a long list of investment biases, e.g., the reluctance to realize losses, performance chasing, and the home bias, are "human" in the sense that investors are born with them. Genetic factors explain up to 50% of the variation in these biases across individual investors. We also find that genetic factors influencing investment biases affect behaviors in other, non-investment, domains. For example, those with a preference for familiar stocks exhibit a preference for familiarity also in other domains. Our results provide empirical support for a biological basis for investment behaviors that have been shown to be wide-spread and persistent. Finally, we find that education does not seem to significantly reduce genetic predispositions to investment biases, and we demonstrate that accounting for confounding genetic factors is important when assessing whether, e.g., education reduces investment biases.