Finance

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.

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