Experience Effects in Finance: Foundations, Applications, and Future Directions / Ulrike Malmendier.

Format:

Book

Author/Creator:

Malmendier, Ulrike.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29074.

NBER working paper series no. w29074

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

This article establishes four key findings of the growing literature on experience effects in finance: (1) the long-lasting imprint of past experiences on beliefs and risk taking, (2) recency effects, (3) the domain-specificity of experience effects, and (4) imperviousness to information that is not experience-based. I first discuss the neuroscientific foundations of experience-based learning and sketch a simple model of its role in the stock market based on Malmendier et al. (2020a,b). I then distill the empirical findings on experience effects in stock-market investment, trade dynamics, and international capital flows, highlighting these four key features. Finally, I contrast models of belief formation that rely on "learned information" with models accounting for the neuroscience evidence on synaptic tagging and memory formation, and provide directions for future research.

Notes:

Print version record

July 2021.