Adam Szyszka
Adam Szyszka
Adam Szyszka
ABSTRACT The aim of this paper is to investigate the degree of susceptibility to behavioral biases (the certainty
effect, the sunk cost fallacy, and mental accounting) among people of various levels of expertise in
market investments and to determine whether this susceptibility is correlated with certain personal-
ity traits (impulsivity, venturesomeness, and empathy). The study included 200 participants: 100 retail
investors who regularly invest in the Warsaw Stock Exchange and 100 students of the Warsaw School
of Economics who are casually involved in investing. In this study, employing a survey methodology,
we conducted a laboratory experiment that allowed us to isolate behavioral biases and personality
traits and measure their influence on investors’ decision-making processes. The participants filled out
questionnaires containing two parts: 1) three situational exercises, which assessed susceptibility to
behavioral biases, and 2) the Impulsivity, Venturesomeness, Empathy Questionnaire (IVE) Question-
naire which measures three personality traits (impulsivity, venturesomeness, and empathy). Statisti-
cal analyses demonstrated that susceptibility to behavioral biases depends on the level of expertise
in market investing such that expertise increases susceptibility to behavioral biases. Some personal-
ity traits influenced the participants’ likelihood of displaying these biases.
KEY WORDS: investors’ expertise; personality traits; behavioral biases; rationality; behavioral finance
1
University of Finance and Management - Faculty of Management and Finance, Warsaw, Poland; 2 Warsaw School of
Economics - Department of Capital Markets, Poland; 3 Warsaw School of Economics - Department of Finance, Poland
Electronic copy
Electronic available
copy availableat:
at:https://ssrn.com/abstract=2694193
http://ssrn.com/abstract=2694193
338 Vol.9 Issue 3 2015 337-352 Marcin Rzeszutek, Adam Szyszka, Monika Czerwonka
bility of investors to so-called behavioral biases resulting 1985). According to neoclassical finance theory, only
from cognitive biases and heuristics as well as emotions an analysis of current and future losses and profits
(Agnew, 2006). These biases disrupt the rationality of should influence these decisions (Bernstein, 2007).
the process of making investment decisions and con- However, investors all too often attach importance to
tribute to inefficient market reactions to information outlays made in the past toward a given investment,
and, as a result, to asset mispricing (Coval & Shumway, and these past costs significantly influence both pres-
2005; Rzeszutek & Czerwonka, 2011). Szyszka (2010) ent and future decisions (De Bondt & Makhija, 1988).
proposed the Generalized Behavioral Asset Pricing On the stock market, this overweighting of past costs
Model, which shows how asset prices can be influenced often leads to retaining positions that generate costs
by various behavioral biases and how prices may devi- for too long and sometimes even to purchasing more
ate from fundamental values due to investors’ irrational shares after declines (Friedman et al., 2007). In doing
behavior. The model distinguishes three behavioral so, investors seek to reduce the average price of pur-
variables that are linked to errors in understanding chasing a share in the hopes that they will be able to
and transforming information signals, problems with record profits more quickly after a small economic up-
representativeness and probability judgment, and un- turn (Connolly & Zeelenberg, 2002; McAfee, Mialon,
stable preferences. In this paper, we investigate three & Mialon, 2010).
examples of behavioral phenomena that are captured
by this model: the certainty effect, the sunk-cost fal- 1.3 Mental Accounting
lacy, and mental accounting. In particular, we look Mental accounting is a process of mentally coding,
at how these three important behavioral phenomena categorizing, and evaluating cash flow, i.e., record-
manifest among investors depending on their level of ing particular expenditures and revenues in various
expertise and personality traits, such as impulsivity, mental accounts (Thaler, 1999). The mental account-
venturesomeness, and empathy. ing effect undermines the principle of substitutability,
which claims that money has no label, i.e., that the
1.1 Certainty Effect source of funds is irrelevant in the spending of them
Daniel Kahneman and Amos Tversky noted many (Haigh & List, 2005). Stock market investors do not
anomalies in how individual preferences are shaped in follow this principle but rather display mental ac-
situations of uncertainty and risk (1973; 1979; 1984). counting and treat profits attained as dividends (cash)
One such anomaly is the certainty effect: the tendency differently from identical “paper” profits—those re-
to overweight outcomes that are certain compared sulting from an increased exchange rate (Winnett &
with outcomes that are highly probable. For example, Lewis, 1994). It has also been observed that investors
Kahneman (2012) observed that a substantial major- are incapable of closing losing positions and investing
ity of participants prefer a certainty of winning $850 funds from those losing shares in new endeavors be-
to a 90% probability of winning $1,000, although the cause these shares are treated as a separate mental ac-
expected value of the latter option is actually higher. count (Odean, 1998). Instead, many hope for chang-
Overweighting a certain win over a highly probable ing trends to make up for those losses in the future,
option, as in the example above, prompts people to which leads to a progressive reduction in the worth of
choose an option with a lower expected value. There- their investment portfolio.
fore, the certainty effect was shown to lead to poten-
tially less profitable investment decisions in the capital 1.4 Expertise and Rationality in Decision
market (Agnew, 2006). Making
Expertise or professional experience sometimes helps
1.2 Sunk-Cost Fallacy in making good decisions; however, equally often ex-
Making decisions in conditions of risk and uncertain- perts, aware of their knowledge within a given domain,
ty is also dependent on the sunk cost fallacy, which can fall prey to various behavioral biases, sometimes
describes the influence of costs incurred in the past even more so than naïve individuals (Braun & Yaniv,
on future investment decisions (Arkes & Blumer, 1992; Krems & Zierer, 1994). Researchers have ana-
Electronic copy
Electronic available
copy availableat:
at:https://ssrn.com/abstract=2694193
http://ssrn.com/abstract=2694193
Investors’ Expertise, Personality Traits and Susceptibility to Behavioral Biases in the Decision Making Process 339
lyzed susceptibility to cognitive and emotional biases it has been observed that neuroticism from the Big
among professional investors compared with individu- Five is positively correlated with a propensity toward
als who engage in the capital market on a more casual the sunk cost fallacy among Tehran investors (Sadi et
basis or even compared with complete novices (e.g., al., 2011). Baddeley et al. (2010) also found an asso-
Camerer & Johnson, 1997; Tyszka & Zielonka, 2002). ciation between particular Eysenck’s (1978) personal-
The results of these studies show that extensive experi- ity traits (impulsivity, venturesomeness and empathy)
ence in stock market investing does not protect people and susceptibility to social influence in financial deci-
from behavioral biases. Professional investors are par- sion making (herding) among British investors. From
ticularly vulnerable to divergence from rational action the abovementioned personality traits, impulsiv-
if a task is not transparent and there are no univocal ity was negatively linked to the degree of hyperbolic
indicators suggesting an appropriate solution (Garvey discounting and the level of risk aversion in another
& Murphy, 2008). In these cases, professionals often study conducted on British investors (Borghans et al.,
fall back onto schemas and/or heuristics. What is sur- 2008). Finally, impulsivity was also found to be a sig-
prising is that, after making the wrong decision, even nificant predictor of pathological gambling behavior
as new information arises that clarifies the problem, (Alessi & Petry, 2003). Although exploring investors’
professional investors can become more convinced personality traits seems to be a new and inspiring way
of having a good understanding of the issue and do to understand how investment decisions are made,
not change their initial stance (Verma, Baklaci & Soy- there has not yet been a sufficient number of studies
demir, 2008). This conviction that they are right grows, on this topic.
despite an influx of information indicating their error
in judgment. 1.6 Purpose and Hypotheses
The first aim of this research is to investigate the de-
1.5 Personality Traits and Susceptibility gree of susceptibility to behavioral biases (the certainty
to Behavioral Biases among Stock Market effect, the sunk cost fallacy, and mental accounting)
Investors among people with various levels of expertise in in-
Recent studies in behavioral finance incorporate vesting, i.e., frequent retail investors at the Warsaw
personality into the analysis of investors’ behavior Stock Exchange (see further: investors) and casual in-
to seek a deeper understanding of investors’ deci- vestors (students of the Warsaw School of Economics;
sion-making processes and their performances in see further: students). A second goal of this research is
the stock market (Borghans et al., 2008; Jadlow & to determine whether this susceptibility is correlated
Mowen, 2010). In particular, it has been observed with certain personality traits (impulsivity, venture-
that certain personality traits can influence inves- someness, and empathy). Because there is still a lack
tors’ preferences (Chira, Adams & Thornton, 2008), of data studies in behavioral finance literature inves-
risk attitudes (Mishra, Lalumiere & Williams, 2010) tigating the issues noted in this article (or the existing
and investment choices and outcomes (Belcher, 2010; results in behavioral finance literature are ambiguous),
Pompian & Longo, 2004). Therefore, some authors we treated our study as exploratory. Therefore, the fol-
state that individual differences in personality traits lowing hypotheses were tested:
among investors can explain their susceptibility to 1. The degree of susceptibility to behavioral biases
various behavioral biases in the stock market invest- (see: certainty effect, sunk-cost fallacy and mental
ment process (Mayfield, Perdue & Wooten, 2008). For accounting) in decision making varies depending
example, Durand, Newby & Sanghani, (2008) showed on an individual’s amount of expertise in stock
the positive relationship between extraversion and market investing.
agreeableness from the Big Five personality traits 2. Susceptibility to behavioral biases (see: certainty
(openness, conscientiousness, extraversion, agree- effect, sunk-cost fallacy and mental accounting)
ableness and neuroticism; Costa & McCrae, 1985) in decision making will be correlated with certain
and the susceptibility to disposition effect and over- personality traits (impulsivity, venturesomeness,
confidence among Australian investors. Additionally, and empathy) in all participants.
Table 1. Participants’ basic demographic information and stock market investment expertise
(some are reverse-scored) on three subscales: impulsiv- sult, they were coded as irrational in accordance with
ity, venturesomeness, and empathy. The reliability coef- Kahneman and Tversky’s study (1979).
ficients for the three IVE subscales range from α = .76 To assess whether the investors differed from the
to α = .0.81 (Eysenck & Eysenck, 2006). The reliability students with regard to susceptibility to the certainty
coefficients for the subscales in this study were α = .79 effect, a chi² test of the independence of the two vari-
for impulsivity, α = .78 for venturesomeness, and α = .72 ables was performed. The results are shown in Table 2.
for empathy. The frequencies of rational answers by investors versus
students were compared, showing relative susceptibil-
3 Results ity to the certainty effect.
Statistical analyses were conducted using PASW Statis- A significant chi² result allows us to reject the
tics 18. To test the first hypothesis concerning the link null hypothesis about the independence of the two
between investing expertise and the degree or rational- variables and accept the alternative hypothesis, that
ity of decision making as measured through the three the two variables are somehow related. In the case of
behavioral biases contained in the exercises, a series of the certainty effect, the group of students behaved
chi² tests of the independence of two variables were significantly more rationally (39 rational answers)
conducted. Three comparisons were made. In each, than the group of investors (26 rational answers),
one variable was the group of participants (investors or chi² (1, N = 200) = 3.85; p<.05. The investors, thus,
students); the other variable was making a rational or were shown to be more susceptible to the certainty
irrational decision in each of the three exercises (see: effect than the students.
Appendix). For a rational answer (one that showed no The same analysis was performed to investigate
behavioral bias), a participant received 1 point. For whether the investors differed from the students with
an irrational answer (one that showed the bias), the regard to susceptibility to the sunk cost fallacy. The re-
participant received no points. For example, the first sults are shown in Table 3.
exercise in the questionnaire measured susceptibility In the case of the sunk cost fallacy, the difference
to the certainty effect. Option A was considered the in answers measuring susceptibility to the sunk cost
rational answer in the first part of the exercise; option fallacy between the investors and students was not sig-
C was considered rational in the second part (see: Ap- nificant, chi² (1, N = 200) = .10; ns.
pendix). These options had the greatest expected value. An identical analysis was performed to determine
Therefore, a subject received 1 point for this exercise if whether the investors differed from the students with
he/she circled both A and C and 0 points otherwise. regard to susceptibility to mental accounting. The re-
The other choices had lower expected values; as a re- sults are shown in Table 4.
Table 2. Outcome of chi² test for frequency of rational answers of stock market investors and WSE students in the exercise
measuring susceptibility to the certainty effect
Stock market
The certainty WSE students Chi² df p
investors
effect
26 39 3.85 1 .041
Table 3. Outcome of chi² test for frequency of rational answers of stock market investors and WSE students in the exercise
measuring susceptibility to the sunk cost fallacy
Stock market
The sunk cost WSE students Chi² df p
investors
fallacy
31 29 .10 1 .762
Table 4. Outcome of chi² test for frequency of rational answers of stock market investors and WSE students in the exercise
measuring susceptibility to mental accounting
Stock market
Mental WSE students Chi² df p
investors
accounting
40 53 3.40 1 .061
Table 5. Means and standard deviations for personality traits among stock market investors and students (N = 200)
In the case of mental accounting, we observed a trend from each other within the level of personality traits.
towards statistical significance, chi² (1, N = 200) = .061. A t-test for independent groups was conducted. The
The students’ group (53 rational answers) behaved in results are presented in Table 5, which shows means
a more rational way than the investors (40 rational and standard deviations for personality traits among
answers). the stock market investors and students. We performed
In the next stage of statistical analyses, we sought to a suitable analysis in regard to gender; however, no sta-
check whether the two groups of participants differed tistically significant differences were found.
As shown in Table 5, the students were significantly bility to the certainty effect. We can accurately predict
more venturesome and marginally more impulsive rational answers to the certainty effect exercise based
than the investors. The two groups did not differ in on level of venturesomeness in 72% of our cases.
their levels of empathy. The results shown in Table 7 indicate that there is
To test the second hypothesis, logistic regression no relationship between impulsivity or empathy and
analyses were conducted. Susceptibility to behavioral susceptibility to the sunk cost fallacy in our sample (re-
biases was the outcome variable. Personality traits spectively, p = .434 and p = .480). There was a signifi-
(impulsivity, venturesomeness, and empathy) were the cant relationship between venturesomeness (p < .05)
predictor variables. We note that logistic regression is and susceptibility to the sunk cost fallacy. Specifically,
the method of choice for analyzing results of studies the more venturesome one was, the more likely he
in which the dependent variable is dichotomous while was to give a rational answer in the sunk cost exer-
the independent variables are interval or categorical cise (Exp (B) > 1). We can accurately predict rational
(Freedman, 2009). This was the case in our study. It is answers in the sunk cost exercise based on venture-
possible to make use of discriminant analysis in these someness in 74% of our cases.
cases; however, it was found that logistic regression The results in Table 8 show that there was no rela-
outperforms discriminant analysis for non-normal tionship between impulsivity or empathy and tenden-
classification problems, which was also the case in our cy to mental accounting in our sample (p = .620 and
study. Additionally, while ordinary regression uses or- p = .668, respectively). There was, however, a relation-
dinary least squares to search for a best fitting line and ship between venturesomeness (p < .001) and suscepti-
addresses coefficients that predict the change in the bility to mental accounting. Specifically, greater venture-
outcome variable for one unit change in the predictor someness was linked to a lower susceptibility to mental
variable, logistic regression estimates the probability of accounting when making decisions (Exp (B) > 1). On
an event occurring (Freedman, 2009). Furthermore, the basis of venturesomeness levels, we can predict ra-
while in linear regression, the relationship between tional answers in the mental accounting exercise in 62%
the outcome and the predictor variables is linear; this of our cases.
assumption is not made in logistic regression. Taking To verify whether the relationship between venture-
the abovementioned factors into account, in our study, someness and susceptibility to the studied behavioral
we used this statistical method because the outcome biases was identical or different in the two groups of
variable was categorical (see: making a rational or ir- participants, we conducted a logistic regression in
rational decision in each of the three exercises) and the which the predictors were the particular group of
predictor variables were continuous (see: personality participants, venturesomeness, and the interaction
traits). Finally, we emphasize that the participants’ age between these two variables. In other words, member-
and other demographics (gender, education) were not ship in one of the two participant groups was treated as
statistically significant variables in our model; conse- a moderator of the relationship between venturesome-
quently, we did not control for them in our analyses. ness and the probability of making rational decisions
Three analyses were performed, one for each of the in the three exercises.
exercises in the questionnaire. The results are shown The results shown in Table 9 indicate that the in-
in Tables 6, 7, and 8. teraction between group and venturesomeness was not
The results shown in Table 6 indicate that there was significant; thus, group belonging did not moderate
no significant relationship between impulsivity or em- the relationship between venturesomeness and mak-
pathy and susceptibility to the certainty effect in our ing rational decisions.
sample as a whole (respectively, p = .967 and p = .14). To verify whether the relationship between impul-
There was, however, a significant relationship between sivity and susceptibility with the studied behavioral bi-
venturesomeness and susceptibility to the certainty ef- ases was identical or different in the two groups of par-
fect (p < .05). Specifically, the more venturesome a par- ticipants, we conducted a logistic regression in which
ticipant was, the more likely he was to give a rational the predictors were the particular group of participants,
answer (Exp (B) > 1) and thus, the lower his suscepti- impulsivity, and the interaction between these two vari-
Table 6. Logistic regression analysis with personality traits as predictors of susceptibility to the certainty effect in the
sample as a whole (N = 200)
Table 7. Logistic regression analysis with personality traits as predictors of susceptibility to the sunk cost fallacy in the
sample as a whole (N = 200)
Table 8. Logistic regression analysis with personality traits as predictors of susceptibility to mental accounting in the
sample as a whole (N = 200)
ables. In other words, membership in one of the two we conducted a logistic regression in which the predic-
participant groups was treated as a moderator of the tors were the particular group of participants, empa-
relationship between impulsivity and the probability of thy, and the interaction between these two variables. In
making rational decisions in the three exercises. other words, membership in one of the two participant
The results shown in Table 10 indicate that the in- groups was treated as a moderator of the relationship
teraction between group and impulsivity was not sig- between empathy and the probability of making ratio-
nificant; thus, group belonging did not moderate the nal decisions in the three exercises.
relationship between impulsivity and making rational The results shown in Table 11 indicate that the
decisions. interaction between group and empathy was not sig-
To verify whether the relationship of empathy and nificant; thus, group belonging did not moderate the
susceptibility to the studied behavioral biases was relationship between empathy and making rational
identical or different in the two groups of participants, decisions.
Table 9. Analysis of interaction in logistic regression, where group (stock market investors vs. WSE students) is a modera-
tor of the relationship between venturesomeness and likelihood of making a rational decision in each of the three
exercises
B Exp(B) Wald df p
Mental accounting
-.06 .94 .40 1 .528
Group x V
Note: V – venturesomeness; B – unstandardized regression coefficient; Exp(B) – standardized regression coefficient; Wald –
Wald test result; df – degrees of freedom; p – statistical significance.
Table 10. Analysis of interaction in logistic regression, where group (stock market investors vs. WSE students) is a modera-
tor of the relationship between impulsivity and likelihood of making a rational decision in each of the three exercises
B Exp(B) Wald df p
Mental accounting
.03 1.03 .13 1 .723
Group x I
Note: I – impulsivity; B – unstandardized regression coefficient; Exp(B) – standardized regression coefficient; Wald – Wald test
result; df – degrees of freedom; p – statistical significance.
Table 11. Analysis of interaction in logistic regression, where group (stock market investors vs. WSE students) is a modera-
tor of the relationship between empathy and likelihood of making a rational decision in each of the three exercises
B Exp(B) Wald df p
Mental accounting
.03 .13 .13 1 .722
Group x E
Note: E – empathy; B – unstandardized regression coefficient; Exp(B) – standardized regression coefficient; Wald – Wald test
result; df – degrees of freedom; p – statistical significance.
consequences of these behaviors (Eysenck & Eysenck, avoidant (Eysenck & Eysenck, 2006). Taking into con-
2006). Although no studies to date have been con- sideration the high level of stress and competition in
ducted using the IVE scale in the context of the behav- stock investing, we can again suppose that the above-
ioral biases mentioned in this study, we suspect that mentioned personality characteristics would not lead
the abovementioned components of venturesomeness to success as a market investor (Benos, 1998).
can compose the personality profile of an effective and In conclusion, a few limitations of this research
simultaneously rational market investor. should be noted. First, for the expert group, the aver-
No statistically significant interaction effect was age number of years investing at the stock exchange
found in the logistic regression (Table 9), indicating remains low (6.56), so the representativeness of this
that belonging to one of the two groups of participants sample may be questioned. Second, including person-
(investors versus students) was not a moderator of the ality traits in financial analysis is difficult due to the
relationship between venturesomeness and the likeli- problems with defining personality traits in financial
hood of making a rational decision in each of the three terms. In particular, it is not altogether clear how the
exercises in our questionnaire. In other words, this personality traits studied here are psychometrically
trait equally important for making rational decisions linked to susceptibility to behavioral biases. We were
in each of the exercises. Perhaps this finding is a result also concerned with the choice of the personality ques-
of the homogenous nature of our sample (all of whom tionnaire, which measures “cross-domain” risk-taking
where market investors, differing only in terms of their tendencies (impulsivity and venturesomeness). There
professional/amateur status), and the nature of the re- is a question about whether we can extrapolate risky
lationships would differ if representatives of entirely lifestyle activities (e.g., high-risk sports participa-
different professions were included in the analysis. tion) to financial risk taking. Although an increasing
This study did not support the significance of the number of studies use this methodology (Mishra et
other studied personality traits, impulsivity and em- al., 2010; Sadi et al., 2011), their results vary, requiring
pathy, on susceptibility or resistance to behavioral further investigation.
bias among investors (Tables 6, 7 and 8). Although
the coefficients were statistically insignificant, the sign 5 Conclusions
of the coefficients could be interpreted as suggestive Our paper provides new knowledge about the psycho-
evidence that individuals with the traits of impulsiv- logical determinants of decision making in the capital
ity and empathy are more susceptible to all three of market. We not only confirm that pure experience does
the biases. This interpretation could partially explain not help in making more rational investment decisions
the fact that these personality types were under-rep- but also show that susceptibility to behavioral biases
resented in the sample (Mayfield et al., 2008). High may depend on personality traits. Our results suggest
impulsivity reflects a pathological aspect of risky be- the necessity of better educating investors to make
havior, an inability to control one’s reactions, a dis- them aware of potential psychological traps. However,
regard for social norms, and an inability to maintain we must remember that education does not guarantee
long-term efforts (Eysenck & Eysenck, 2006) and is success because personality traits may also determine
linked to various abnormal behaviors, such as gam- one’s attitude and behavior in a stock market.
bling addiction (Mishra et al., 2010) and psychoactive
substance abuse (Hayaki & Stein, 2006). We might References
suspect that people with this personality profile would Agnew, J. R. (2006). Do behavioral biases vary across
not thrive in the difficult, cognitively complex and individuals? Evidence from individual level 401(k)
responsible profession of market investors, or if they data. Journal of Financial and Quantitative Analy-
did, they would likely be eliminated in the early stages sis, 41 (4), 939-962.
of professional selection or would resign. However, Akerlof, G. A, & Schiller, R. J. (2009). How Human
people of high empathy, as measured with the IVE, Psychology Drives the Economy and Why It Mat-
are not only delicate and value close relationships with ters for Global Capitalism. Ewing, NJ: Princeton
others but are also submissive, obedient, and conflict- University Press.
Alessi, S. M., & Petry, N. M. (2003). Pathological gam- Corter, J., & Chen, Y. (2006). Do investment risk tol-
bling severity is associated with impulsivity in a erance attitudes predict portfolio risk? Journal of
delay discounting procedure. Behavioural Process- Business and Psychology, 20 (3), 369-381.
es, 64 (3), 345–354. Costa, P. T., & McCrae, R. R. (1985). The NEO Person-
Arkes, H., & Blumer, C. (1985). The psychology of ality Inventory manual. Odessa, FL: Psychological
sunk cost. Organisational Behavior and Human Assessment Resources.
Decision Processes, 35, 124-140. Coval, J., D., & Shumway, T. (2005). Do behavioral bi-
Baddeley, M., Burke, C., Tobler, P. & Schulz, W. ases affect prices? The Journal of Finance, 60 (1),
(2010). Impacts of Personality on Herding in 1-34.
Financial Decision-Making (Working Paper No. De Bondt, W., & Thaler, R. (1987). Further evidence on
1006). Faculty of Economics, University of Cam- investor overreaction and stock market seasonal-
bridge. ity. The Journal of Finance, 42 (3), 557-580.
Belcher, L. J. (2010). Prior perceptions, personality De Bondt, W., & Makhija, A. (1988). Throwing good
characteristics and portfolio preferences among money after bad? Nuclear power plant investment
fund managers: an experimental analysis. Journal decisions and the relevance of sunk costs. Journal
of Behavioral Finance, 11 (4), 239-248. of Economic Behavior and Organization, 10 (2),
Benos, A. (1998). Aggressiveness and survival of 173-199.
overconfident traders. Journal of Financial Mar- Dror, I., Katona, M., & Mungur, K. (1998). Age Differ-
kets, 1 (3-4), 353-383. ences in Decision Making: To Take a Risk or Not?
Bernstein, P. L. (2007). Capital Ideas Evolving. Hobo- Gerontology, 44 (2), 67-71
ken, NJ: John Wiley & Sons, Inc. Durand, R. B., Newby, R., & Sanghani, J. (2008). An In-
Borghans, L., Duckworth, A., Heckman, J., & Weel, B. timate Portrait of the Individual Investor. Journal
(2008). The economics and psychology of person- of Behavioral Finance 9 (4), 193-208.
ality traits. Journal of Human Resources, 43 (4), Eysenck, S. B. G., & Eysenck, H. J. (1978). Impulsive-
972-1059. ness and venturesomeness: Their position in a di-
Braun, P., & Yaniv, I. (1992). A case study of expert mensional system of personality description. Psy-
judgment: economists’ probabilities versus base- chological Reports, 43 (3), 1247-1255.
rate model forecasts. Journal of Behavioral Deci- Eysenck, H. J., & Eysenck, S. B. G. (2006). Manual for
sion Making, 5 (3), 217-231. the Eysenck Personality Scales (EPS Adult) includ-
Camerer, C. F., & Johnson, E. J. (1997). The process ing EPQ–Revised, EPQ– Short Scale, IVE Ques-
performance paradox in expert judgment: how tionnaire. London, UK: Hodder and Stoughton
can experts know so much and predict so badly. In Educational.
W. M. Goldstein & R. M. Hogarth (Eds.), Research Fama, E. F. (1970). Efficient capital markets: A review
on judgment and decision making: Currents, con- of theory and empirical work. Journal of Finance,
nections, and controversies (pp. 342-364). Cam- 25 (2), 383-417.
bridge, UK: Cambridge University Press. Fama, E. F. (1991). Efficient capital markets II. Journal
Camgoz, M., Karan, B., & Ergeneli, A. (2011). Rela- of Finance, 46 (5), 1575-1617.
tionship between the Big-Five Personality and the Freedman, D. (2009). Statistical Models: Theory and
financial performance of fund managers. Current Practice (2nd ed.). Cambridge, UK: Cambridge
Topics in Management, 15, 137-152. University Press.
Chira, I., Adams, M., & Thornton, B. (2008). Behav- Friedman, D., Pommerenke, K., Lukose, R., Milam,
ioral bias within the decision making process. G., & Huberman, B. A. (2007). Searching for the
Journal of Business & Economics Research, 6 (8), sunk cost fallacy. Experimental Economics, 10 (1),
11-20. 79–104.
Connolly, T., & Zeelenberg, M. (2002). Regret in deci- Garvey, R., & Murphy, A. (2008). Are professional
sion making. Current Directions in Psychological traders too slow to realize their losses? Financial
Science, 11 (6), 212–216. Analysts Journal, 60 (4), 35-43.
Haigh, M., & List, J. (2005). Do professional traders ing investment programs based on personality
exhibit myopic loss aversion? An experimental type and gender to produce better investment out-
analysis. The Journal of Finance, 60 (1), 523-534. comes. The Journal of Wealth Management, 7 (2),
Hayaki, J., Anderson, B., & Stein, M. (2006). Sexual 9-15.
risk behaviors among substance users: relation- Roszkowski, M., & Grable, J. (2005). Estimating risk
ship to impulsivity. Psychology of Addictive Behav- tolerance: the degree of accuracy and the para-
iors, 20 (3), 328-332. morphic representations of the estimate. Financial
Hopfensitz, A., & Wranik, T. (2009). How to Adapt to Counseling and Planning, 16 (2), 29-47.
Changing Markets: Experience and Personality in Rzeszutek, M., Czerwonka, M. (2011). Analiza za-
a Repeated Investment Game (Working Paper No. chowań inwestycyjnych inwestorów giełdowych
122). Toulouse School of Economics. i studentów kierunków ekonomicznych i huma-
Jadlow, J., & Mowen, J. (2010). Comparing the Traits of nistycznych z perspektywy finansów behawioral-
Stock Market Investors and Gamblers. Journal of nych [Analysis of investment behawior of stock
Behavioral Finance, 11 (2), 67-81. market investors and economics and humanities
Kahneman, D., & Tversky, A. (1973). On the psychol- students from the perspective of behavioral finan-
ogy of prediction. Psychological Review, 80 (4), ce]. Studia i Prace Kolegium Zarządzania i Finan-
237-251. sów Szkoły Głównej Handlowej, 107, 28-44.
Kahneman, D., & Tversky, A. (1979). Prospect theory: Sadi, R., Asl, H. G., Rostami, M., Gholipour, A., &
An analysis of decisions under risk. Economoteri- Gholipour, F. (2011). Behavioral finance: the ex-
ca, 47 (2), 263-292. planation of investors’ personality and perceptual
Kahneman, D., & Tversky, A. (1984). Choices, values biases effects on financial decisions. Intemational
and frames. American Psychologist, 39 (4), 341 – Joumal of Economics and Finance, 3 (5), 234-241.
350. Sjoberg, L., & Engelberg, E. (2009). Attitudes to eco-
Kahneman, D. (2012). Thinking fast and slow. New nomic risk taking, sensation seeking and values of
York, NY: Penguin Books Ltd. business students specializing in finance. Journal
Krems, J., & Zierer, C. (1994). Are experts immune of Behavioral Finance, 10 (1), 33-43.
to cognitive bias? Dependence of “confirmation Stephan, E. (1998, June). Heuristics and biases in deci-
bias” on specialist knowledge. Zeitschrift für ex- sion making: the role of incentives, ability, and ex-
perimentelle und angewandte Psychologie, 41 (1), pertise. Paper presented at research Seminar held
98-115. at the Erasmus University Rotterdam.
Markowitz, H. M. (1952). Portfolio selection. Journal Sultana, S. T., & Pardhasaradhi S. (2010). An empirical
of finance, 7 (1), 77-91. investigation of the relation between risk tolerance
Mayfield, C., Perdue, G., & Wooten, K. (2008). Invest- and socioeconomic characteristics of individual
ment management and personality type. Financial investors. Advances in Management, 4 (10), 60-66.
Services Review, 17 (3), 219–236. Szyszka, A. (2007). Wycena papierów wartościowych
McAfee, R. P., Mialon, H. M., & Mialon, S. H. (2010). na rynku kapitałowym w świetle finansów be-
Do sunk costs matter? Economic Inquiry, 48 (2), hawioralnych [A behavioral finanse perspective
323–336. on valuation of securities on the capital market].
Mishra, S., Lalumiere, M. L., & Williams, R. J. (2010). Poznań: Wydawnictwo Akademii Ekonomicznej
Gambling as a form of risk-taking: individual dif- w Poznaniu.
ferences in personality, risk-accepting attitudes, Szyszka, A., Zielonka, P. (2007). The Disposition Effect
and behavioral preferences for risk. Personality Demonstrated on IPO Trading Volume. Journal of
and Individual Differences 49 (6), 616–621. Behavioral Finance, 4 (3), 40-48.
Odean, T. (1998). Are investors reluctant to realize Szyszka, A. (2010). Preferences and belief based mod-
their losses. Journal of Finance, 53 (5), 1775-1798 els. In. H. K. Baker & J. Nofsinger (Eds.), Behavior-
Pompian, M., & Longo, J. (2004). A new paradigm for al Finance: Investors, Corporations, and Markets,
practical application of behavioral finance: creat- (pp. 351 – 372). Hoboken, NJ: J. Wiley & Sons.
Appendix ema, you discover that you have lost the ticket. You
do, however, have a 20 PLN bill in your pocket. Do
Appendix 1. Exercise measuring susceptibility you spend another 20 PLN to buy another ticket, or
to the certainty effect do you decide not to see the movie?
B. Now, please imagine that you have decided to go
EXERCISE 1 see a movie but have not yet bought a ticket. As
Please imagine that you must choose between options you leave your home, you take two 20 PLN bills
A and B. (Please circle the preferred option): with you. After entering the cinema, you discover
A. A lottery in which: that you have lost 20 PLN. In this situation, do you
• You have an 80% probability of winning 4,000 PLN. spend the other 20 PLN to buy a ticket, or do you
• You have a 20% probability of not winning any- decide not to see the movie?
thing.
B. A certain win of 3,000PLN.
EXERCISE 2
As the president of a large aviation company, you have
invested 10 million dollars in a development project.
Its goal was to build an airplane that would quickly
cover the distance between Europe and the USA.
When your project is 90% complete, a rival company
announces that it is introducing an identical plane
onto the market, which, as it turns out, is much more
economical to use than yours. In this situation, would
you invest the final 10% of the costs to complete the
project (option A), or would you instead decide to im-
mediately abandon it (option B)? (Please circle the op-
tion you would choose).
EXERCISE 3
Please imagine the following two situations, A and B,
and circle the behavior that you would choose in each:
A. You have decided to go see a movie, and you have
bought a ticket for 20 PLN. After entering the cin-