A Prospect Theory Explanation of the Disposition to Trade Losing Investments for Less Than Market Price
Bibliographic Data
| ID | 13655673 |
|---|---|
| Authors | David Johnstone (0000-0002-7939-7762, University of Wollongong, corresponding author), D J JOHNSTONE (University of Wollongong) |
| Year | 2002 |
| Volume | 90 |
| Issue | 3 |
| Pages | 851-857 |
| Publication date | 2002-06-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Psychological Reports (JOURNAL) |
| Journal identifiers | ISSN: 0033-2941 • E-ISSN: 1558-691X |
| Publisher | SAGE Publishing (PUBLISHER • US) |
| DOI | 10.2466/pr0.2002.90.3.851 |
| PMID | 12090518 |
| OpenAlex | W2110596119 |
| Language | EN |
| References cited | 7 |
Investors have a proven general reluctance to realize losses. The theory of "mental accounting" suggests that losses are easier to accept when mentally integrated with either preceding losses or with compensatory gains. Mental integration is made easier when a failed asset is exchanged against a new, apparently profitable, acquisition. The alternative is to sell the existing asset on the open market before re-investing the proceeds as desired. This is emotionally less appealing than "rolling over" a losing investment into a new venture by way of an asset trade. The psychological benefits of exchanging rather than selling a failed asset come at a cost. It is typical of trade-in arrangements, e.g., where one trades an old car against a new one, that the effective sale price of the existing asset is less than current market value. Acceptance of this low price adds to the investor's total monetary loss on the existing asset but is essential to an overall package deal apart from which that asset would often remain belatedly unsold
Asset (computer security · Business · Disposition · Disposition effect · Economics · Financial economics · Investment (military · Microeconomics · Monetary economics · Prospect theory · Value (mathematics · Computer Science · Consumer Market Behavior and Pricing · Corporate Finance and Governance · Decision-Making and Behavioral Economics · Financial Markets and Investment Strategies · Financial Reporting and Valuation Research · Merger and Competition Analysis · Psychology · Social Psychology
| Citation velocity | historical |
|---|---|
| Highly cited | No |