CMMU Faculty Latest Publication on Behavioral Finance

 Well-known research by Nobel laureate Daniel Kahneman and Amos Tversky has demonstrated that most people are loss averse when making decisions that involve risk, such as financial decisions. Loss aversion means that the pain of a potential loss looms much larger than the positive feeling associated with a gain. Dr. Dimmock and Dr. Kouwenberg test whether survey measures of loss aversion can predict whether households invest in stocks or not, using data from the DNB Household Survey conducted in The Netherlands. The research finds that higher loss aversion is associated with a lower probability of stock market participation. Further, higher loss aversion reduces the probability of direct stockholding by significantly more than the probability of owning mutual funds.