Psychology of Stock Choices: High Risk or Steady Gains?
Researchers conducted a study exploring why investors are drawn to high-risk IPO shares despite their generally low returns, comparing this allure to the steady yet modest returns of investments like catastrophe bonds. The study involved participants choosing between stocks with varying return profiles, revealing a preference for investments that yield frequent returns over those with occasional high gains. This “frequent winner effect” suggests investors prioritize the consistency of returns, shifting preferences when presented with modified data showing high-risk stocks as frequently outperforming. ….[READ]
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