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Title: Psychology of financial decisions, using large transaction datasets
Author: Sakaguchi, Hiroaki
ISNI:       0000 0004 6496 6787
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 2017
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Behavioral studies show that people tend to use various decision heuristics which discard part of the available information, simplify the decision problem, and find a good enough answer. In addition, people’s decision and behavior may change because they learn from experience. This thesis investigates people’s heuristic decision making and learning from experience in two frequent real-world financial decision contexts—credit card repayments and stock trading. Chapter 1 reviews the literature about decision heuristics and nudges. Literature about learning from experience is also reviewed. Chapter 2 shows that automatic minimum credit card repayment as a default nudge has the adverse effect of reducing repayments by allowing card holders to neglect their monthly bill. Chapter 3 examines whether people learn from the negative feedback provided by credit card fees. We show that cardholders tend to adapt to late payment fees, which are typically due to forgetting a repayment, by setting up an automatic repayment. On the other hand, cash advance and over-limit fees are due to card holders’ liquidity needs rather than their mistakes, and thus, they do not learn from experiencing those fees. Our findings are contrast to those in a previous study in the US suggesting that people learn from all three types of fees. Chapter 4 shows evidence of people’s heuristic processing of numerical information in the context of credit card repayments. We find a strong tendency of card holders repaying at several prominent numbers. We also find people’s preference for round numbers. Conducting an online experiment, Chapter 5 confirms the anchoring effect of numerical information in a credit card bill, as in previous studies, and finds a false consensus bias where people who usually repay only the minimum greatly overestimate the commonness of minimum repayments among others. However, a social nudge phrase in a mock bill fails to correct the false belief, and thus, dose not reduce the likelihood of people repaying only the minimum. Chapter 6 presents a two-stage model of the choice of a stock to sell. Typically investors show a disposition effect, being more likely to sell a stock in gain than loss, other things equal. In our model, investors first decide whether to sell a stock in the domain of gains or losses, and only then, evaluate stocks within the chosen domain. As evidence for the model, our analysis shows that the likelihood of an individual stock being sold is inversely proportional to the number of stocks in the same domain in the portfolio but is not sensitive to the number of stocks in the other domain. Our findings indicate that existing estimation methods of the disposition effect result in substantial biases because those estimations assume that all stocks in a portfolio are simultaneously evaluated across domains of gains and losses. Chapter 7 summarizes the findings and implications of Chapters 2-6. Plans and suggestions for future research are also discussed.
Supervisor: Not available Sponsor: Economic and Social Research Council
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: BF Psychology ; HG Finance