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2014 | 45 | 1 | 29-35
Article title

Growth and Decline of Assets: On Biased Judgments of Asset Accumulation and Investment Decisions

Content
Title variants
Languages of publication
EN
Abstracts
EN
Previous research showed that accumulations of capital following stationary interest rates are underestimated by human judges. Hyperbolic discounting was suggested as a descriptive and explanatory model for this phenomenon. First, we investigated judged accumulated capital after a period of annual growth and decline. The degree of underestimation increased with accumulated growth and the results supported hyperbolic discounting as a descriptive model on the group level. However, the hyperbolic model did not apply to the data for one third of the participants. Second, we investigated how investment decisions were related to capital accumulation before the investments and to judgments of the possible outcomes of the future investments. To our surprise, the participants’ judgments of expected future accumulated capital did not add predictive power to predictions based on whether there was growth or decline before the investment decision. Unfortunately this strategy leads to suboptimal investment decisions.
Year
Volume
45
Issue
1
Pages
29-35
Physical description
Contributors
  • Risk Analysis, Social and Decision Research Unit, Department of Psychology, Stockholm University, SE-106 91 Stockholm Sweden
author
  • Risk Analysis, Social and Decision Research Unit, Department of Psychology, Stockholm University, SE-106 91 Stockholm Sweden
  • Decision Research, Eugene Oregon 97401, USA
References
Document Type
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.desklight-7f92c924-dccd-4b70-a4d1-35f734b78517
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