title: Debiasing the disposition effect by reducing the saliency of information about a stock's purchase price.
abstract: The disposition effect refers to the empirical fact that investors have a higher propensity to sell risky assets with capital gains compared to risky assets with capital losses, and it has been associated with low trading performance. We use a stock trading laboratory experiment to investigate if it is possible to reduce subjects' tendency to exhibit a disposition effect by making information about a stock's purchase price, and thus about capital gains and losses, less salient. We compare two experimental conditions: a high-saliency condition in which the purchase price of a stock is prominently displayed by the trading software, and a low-saliency condition in which it is not displayed at all. We find that individuals exhibit a disposition effect in the high-saliency condition, and that the effect is 25% smaller in the low-saliency condition. This suggests that it is possible to debias the disposition effect by reducing the saliency with which information about a stock's purchase price is displayed on financial statements and online trading platforms.
authors.affiliation: Department of Finance and Business Economics, USC Marshall School of Business, 3670 Trousdale Parkway, Suite 308, Los Angeles, CA 90089. (213)-821-5586.
authors.forename: Cary
authors.initials: C
authors.lastname: Frydman
authors.affiliation: Division of Humanities and Social Sciences & Computational and Neural Systems, Caltech, 1200 E. California Blvd, Pasadena, CA 91125. (626)-395-4091.
authors.forename: Antonio
authors.initials: A
authors.lastname: Rangel
keywords: attention; behavioral finance; debiasing; decision mistakes; disposition effect; realization utility