Investor’s Disposition Error at Emerging Market: Evidence for Experiential and Rational Thinking Styles

Abstract

This study aims to examine the role of two information processing styles toward investor’s disposition errors. This experimental study used a full factorial design 2 x 2 x 2 (two decision outcomes: negative and positive, two types of action: inaction (hold stock) and action (sell stock), two information processing styles: rational and experiential styles. The subjects in this experiment consisted of 181 participants. The experimental results conclude several important findings. First, there was a significant interaction of information processing styles, types of action, and decision outcomes in shaping degree of participant’s satisfaction/regret in investment decisions. Interestingly, when the decision outcome was negative (actual loss) and type of action was to hold losing stock, degree of regret was higher for subjects who were in an experiential styles than rational thinking styles. Likewise, when decision outcome was positive (missed loss) and type of action was to hold stocks, degree of satisfaction was higher for subjects who were in an experiential style rather than rational thinking styles. Second, the result of this study indicated that the emotion of satisfaction/regret was more predominant on subjects who were in an experiential thinking style than a rational thinking style. This result revealed that disposition error was greater on subjects who were in an experiential style than a rational thinking styles.

DOI: 10.5901/mjss.2015.v6n5p313