Investor Memory [Working paper]
with Peiran Jiao & Paul Smeets
R&R at The Review of Financial Studies

The paper studies how memory shapes investor beliefs and behavior. We provide experimental evidence of a systematic memory bias. One week after observing investment outcomes, individuals over-remember gains and under-remember losses from their investment choices. The memory bias affects beliefs and subsequent investment decisions. Individuals form overly optimistic beliefs about their investment compared to a normative benchmark and re-invest even when doing so leads to a lower expected return. We further implement several treatments to provide evidence on the underlying mechanism driving the memory bias. Our findings are in line with the notion of a motivational mechanism involving self-image concerns. Importantly, individuals only exhibit the memory bias if they actively chose the investment. In contrast, individuals who did not choose their investments or did not invest but merely observed outcomes do not have a memory bias. Our findings contribute to the understanding of how people learn from experience in financial markets. Further, the documented memory bias offers a consistent explanation for stylized facts about investor behavior, such as stock repurchase mistakes and persistent investing of unsuccessful investors, as well as dynamic risk taking in many economic domains.

Presented at (excerpt):

  • AFA 2020 (San Diego)
  • Belief Based Utility Conference 2022
  • briq Institute Workshop on Beliefs 2021
  • Early Career Behavioral Economics Conference (ECBE) 2022
  • Early Career Women in Finance Conference at Stanford 2020
  • Helsinki Finance Summit on Investor Behavior 2019

Disposed to Be Overconfident [Working paper]
with Terrance Odean & Paul Smeets

We show that the disposition effect – the tendency of investors to hold losers and sell winners – can be a source of overconfidence. We consider empirical, experimental, and theoretical evidence. Based on survey data and transaction records, we show that Dutch retail investors who realized more gains than losses believe they have higher portfolio performance relative to other investors, even after controlling for their actual portfolio performance. In an experiment, individuals update beliefs about their own investment ability based on realized gains and losses rather than overall performance of their portfolio. And in a theoretical model in which investors update beliefs about their ability by attending to realized gains and losses, the disposition effect leads to overconfidence, low trading profits, and high volume.

Presented at (excerpt):

  • CESifo Area Conference on Behavioral Economics 2023
  • Zurich Workshop on Economics and Psychology 2023
  • CEPR Advanced Forum in Financial Economics (CAFFE) seminar series 2022
  • Helsinki Finance Summit on Investor Behavior 2022
  • SFS Cavalcade North America 2022 (Chapel Hill)
  • SITE conference – Psychology and Economics 2022 (Stanford)
  • WFA 2022 (Portland)

Attention to Extreme Returns [Working paper]
with Moritz Lukas

It has been shown that individual investors are more likely to buy rather than sell stocks that catch their attention. This can lead to suboptimal choices when attention-attracting qualities of a stock may indirectly detract from its utility. This paper tests the causal effect of extreme stock returns on investors’ purchase behavior at the individual level by means of a controlled laboratory experiment. We find an asymmetric effect of extreme returns on investors’ visual attention (using eye-tracking), which misguides subsequent stock buying behavior at the individual level.  Extremity of returns increases investor attention and stock buying behavior in case returns are negative and not if returns are positive. Attention-driven purchase behavior occurs even in situations in which it reduces subjects’ expected return.

Categorization and Learning from Financial Information [Working paper]

This paper examines the role of coarse categories in individuals’ learning from financial information. In particular, I (i) test theoretical predictions about categorical over- and underreaction to information by Mullainathan (2002) in an investment context, (ii) explore differences in category-based belief formation along category types and (iii) link category-based beliefs to investment behavior. My findings document that information aggregation along prominent categories in financial markets, such as industries, can affect people’s beliefs and investment decision-making. I find differences across category types. Subjects form category-based beliefs when the observed stock belongs to “good” stock categories associated with gains. People then overreact to category changes, form overly optimistic beliefs, and invest significantly more in the stock. Yet, I find the opposite pattern if the stock belongs to “bad” stock categories associated with losses. People then seem to be generally sensitive to the stock’s outcomes. Category changes do not distort their beliefs.


  • Investor Memory in the Field [Website]
    with Paul Smeets
    (Large-scale survey among bank clients, transaction data, RCTs)
  • Mental Models of Financial Experts
    with Rob Bauer, Paul Smeets & Florian Zimmermann
    (Field survey & online experiment)
  • Investor Confidence in Delegated Decisions
    with Marten Laudi
    (Lab experiments)
  • Do Managers Know Their Clients? A Field Study with the Board and Beneficiaries of Dutch Pension Funds
    with Rob Bauer, Alain Cohn, & Paul Smeets
    (Field survey & online experiment)