Online from: 1975
Subject Area: Accounting and Finance
|Title:||The effect of setting goals and emotions on asset allocation decisions|
|Author(s):||James A. Sundali, (Department of Managerial Sciences, University of Nevada, Reno, Reno, Nevada, USA), Gregory R. Stone, (Department of Managerial Sciences, University of Nevada, Reno, Reno, Nevada, USA), Federico L. Guerrero, (Department of Economics, University of Nevada, Reno, Reno, Nevada, USA)|
|Citation:||James A. Sundali, Gregory R. Stone, Federico L. Guerrero, (2012) "The effect of setting goals and emotions on asset allocation decisions", Managerial Finance, Vol. 38 Iss: 11, pp.1008 - 1031|
|Keywords:||Asset allocation, Assets management, Behavioral finance, Individual behaviour, Individual psychology, Investments|
|Article type:||Research paper|
|DOI:||10.1108/03074351211266766 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||JEL classification – G11 – portfolio choice, investment decisions, D03 – behavioral economics|
Purpose – The purpose of this paper is to conduct a controlled experiment to examine the effect of goal setting and affect framed feedback on repeated asset allocation investment decisions.
Design/methodology/approach – The design of the experiment is a 2×2 between subject design. Subjects allocated monies among four investments for 20 periods. One manipulation varied whether subjects received performance feedback in the form of a happy or sad face, while another manipulation varied whether subjects set a financial goal for themselves and received goal attainment performance feedback.
Findings – The main findings include: subjects initially allocate assets in a manner roughly consistent with their stated preference for risk; prior year asset performance leads subjects to make significant changes in portfolio asset allocation in a manner consistent with beliefs of positive autocorrelation in asset returns; and the addition of happy or sad faces to performance feedback information leads to even greater changes in asset allocation.
Originality/value – Using ideas from the theory on the self-regulation of behavior and the role of affect in decision making, the authors develop an original framework to account for the results.
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