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Not all financial speculation is treated equally: Laypeople’s moral judgments about speculative short selling

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  • Lotz, Sebastian
  • Fix, Andrea R.

Abstract

Since the recent financial crisis, regulators and the general public have focused on financial speculation as one of its potential causes. In addition to the roles played by rating agencies and complicated financial engineering, speculative short sales have been put into question. However, laypeople’s moral judgments about this type of financial speculation have rarely been investigated in economic psychology. The present study aims to fill this gap. Across four studies, we find that laypeople’s moral judgments of short selling are significantly harsher than their judgments of long positions. Both successful (Study 1) and unsuccessful (Study 2) short selling receives harsher moral judgments. In addition, studies which manipulate the moral character of the shorted asset (Study 3) or the time horizon of the investment strategy (Study 4) support the conclusion that short selling is considered less moral than taking a similar long position. The results present consistent support for a judgment bias of economic laypeople in the domain of financial economics.

Suggested Citation

  • Lotz, Sebastian & Fix, Andrea R., 2013. "Not all financial speculation is treated equally: Laypeople’s moral judgments about speculative short selling," Journal of Economic Psychology, Elsevier, vol. 37(C), pages 34-41.
    • Handle: RePEc:eee:joepsy:v:37:y:2013:i:c:p:34-41
    DOI: 10.1016/j.joep.2013.05.005
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    More about this item

    Keywords

    Moral judgments; Financial speculation; Laypeople; Heuristics and biases;
    All these keywords.

    JEL classification:

    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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