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Losers, Winners, and Biased Trades

Author

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  • Joseph Johnson
  • Gerard J. Tellis
  • Deborah J. Macinnis

Abstract

When faced with sequential information, consumers tend to fall prey to one of two well-known heuristics: the hot (or cold) hand and the gambler's fallacy. The authors relate these two traditionally separate heuristics to differences in accepting (buy) versus rejecting (sell) decisions. They identify trend length as a contextual moderating variable and show an asymmetry between buying and selling frames. When applied to a stock market context, a consistent finding is that consumers prefer to buy past winners and sell past losers even when neither should be preferred. This behavior violates the normative rule of buy low and sell high. (c) 2005 by JOURNAL OF CONSUMER RESEARCH, Inc..

Suggested Citation

  • Joseph Johnson & Gerard J. Tellis & Deborah J. Macinnis, 2005. "Losers, Winners, and Biased Trades," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 32(2), pages 324-329, September.
    • Handle: RePEc:oup:jconrs:v:32:y:2005:i:2:p:324-329
    DOI: 10.1086/432241
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    Cited by:

    1. Katharina Dowling & Daniel Guhl & Daniel Klapper & Martin Spann & Lucas Stich & Narine Yegoryan, 2020. "Behavioral biases in marketing," Journal of the Academy of Marketing Science, Springer, vol. 48(3), pages 449-477, May.
    2. Carlson, Kurt A. & Shu, Suzanne B., 2007. "The rule of three: How the third event signals the emergence of a streak," Organizational Behavior and Human Decision Processes, Elsevier, vol. 104(1), pages 113-121, September.
    3. Hoffmann, Arvid O.I. & Broekhuizen, Thijs L.J., 2010. "Understanding investors' decisions to purchase innovative products: Drivers of adoption timing and range," International Journal of Research in Marketing, Elsevier, vol. 27(4), pages 342-355.
    4. Oded Netzer & Olivier Toubia & Eric Bradlow & Ely Dahan & Theodoros Evgeniou & Fred Feinberg & Eleanor Feit & Sam Hui & Joseph Johnson & John Liechty & James Orlin & Vithala Rao, 2008. "Beyond conjoint analysis: Advances in preference measurement," Marketing Letters, Springer, vol. 19(3), pages 337-354, December.
    5. John Tsalikis & Bruce Seaton, 2007. "Business Ethics Index: USA 2006," Journal of Business Ethics, Springer, vol. 72(2), pages 163-175, May.
    6. Jaakko Aspara & Arvid Hoffmann, 2015. "Selling losers and keeping winners: How (savings) goal dynamics predict a reversal of the disposition effect," Marketing Letters, Springer, vol. 26(2), pages 201-211, June.
    7. Campbell, Michael J. & Smith, Vernon L., 2021. "An elementary humanomics approach to boundedly rational quadratic models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 562(C).
    8. John Tsalikis & Bruce Seaton, 2007. "The International Business Ethics Index: European Union," Journal of Business Ethics, Springer, vol. 75(3), pages 229-238, October.
    9. Christopher T. Ball, 2012. "Not all streaks are the same: Individual differences in risk preferences during runs of gains and losses," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(4), pages 452-461, July.
    10. U Benzion & Y Cohen & R Peled & T Shavit, 2008. "Decision-making and the newsvendor problem: an experimental study," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(9), pages 1281-1287, September.
    11. Ha Ta & Terry L. Esper & Kenneth Ford & Sebastian Garcia‐Dastuge, 2018. "Trustworthiness Change and Relationship Continuity after Contract Breach in Financial Supply Chains," Journal of Supply Chain Management, Institute for Supply Management, vol. 54(4), pages 42-61, October.
    12. Jeremy S. Wolter & Dora Bock & Jeremy Mackey & Pei Xu & Jeffery S. Smith, 2019. "Employee satisfaction trajectories and their effect on customer satisfaction and repatronage intentions," Journal of the Academy of Marketing Science, Springer, vol. 47(5), pages 815-836, September.
    13. U Benzion & Y Cohen & T Shavit, 2010. "The newsvendor problem with unknown distribution," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(6), pages 1022-1031, June.
    14. Khan, Mohammad Tariqul Islam & Tan, Siow-Hooi & Chong, Lee-Lee, 2017. "How past perceived portfolio returns affect financial behaviors—The underlying psychological mechanism," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1478-1488.
    15. Campbell, Michael, 2020. "Speculative and hedging interaction model in oil and U.S. dollar markets—Long-term investor dynamics and phases," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    16. Arvid O. I. Hoffmann & Thomas Post & Tom Smith, 2017. "How return and risk experiences shape investor beliefs and preferences," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(3), pages 759-788, September.
    17. Campbell, Michael J., 2022. "Heavy-tailed distributions of volume and price-change resulting from strategy coordination and decision noise," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 607(C).
    18. Sunitha Kumaran, 2013. "Impact of Personal Epistemology, Heuristics and Personal Attributes on Investment Decisions," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(3), pages 62-69, July.
    19. Tobias Kraemer & Welf H. Weiger & Matthias H. J. Gouthier & Maik Hammerschmidt, 2020. "Toward a theory of spirals: the dynamic relationship between organizational pride and customer-oriented behavior," Journal of the Academy of Marketing Science, Springer, vol. 48(6), pages 1095-1115, November.
    20. Ana Oliveira Madsen & Valentina Chkonia, 2021. "Tendencies Regarding Fish Consumption - The Case of Portugal (Europe’s Leader - 3rd in the World)," European Journal of Interdisciplinary Studies Articles, Revistia Research and Publishing, vol. 7, ejis_v7_i.
    21. repec:cup:judgdm:v:7:y:2012:i:4:p:452-461 is not listed on IDEAS

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