Study: Fear A Factor In Stock Decisions
November 8, 2011 by UPI - United Press International, Inc.
BERKELY, Calif., Nov. 8 (UPI) — Investors fearful about their stocks project that fear onto others which then leads them to sell stocks earlier than they might otherwise, U.S. researchers say.
Researchers at the University of California, Berkeley’s Haas School of Business say the scared investor’s early decision to sell stocks happens through “social projection” — people’s tendency to heavily rely on their own current feelings and inclinations when they estimate others’ state of mind and preferences.
As a result of social projection, a worried investor assumes that other investors are also scared and that their fear will consequently drive the stock price down, prompting the one investor to sell early before the price sinks, a UC Berkeley release said Tuesday.
“If I’m scared, I tend to project that you are scared,” professor Eduardo Andrade said. “If I feel like selling, I project that you are also going to sell, and that pushes me to sell earlier rather than later in anticipation of a drop in stock value.”
In an experiment involving a stock market simulation, fear promoted early selling only when participants in the study were told that the value of the stock was peer-generated.
When participants were told a computer randomly determined the stock value — removing social projection as a factor — the fear-driven early selling was not seen, researchers said.