[5 min 54 sec] – Watching a horror movie can scare you into selling your stocks earlier than you would have otherwise. That’s the frightening evidence shown in a series of studies by Associate Professor Eduardo Andrade and Chan Jean Lee, a PhD candidate, both in the Haas Marketing Group. Lee and Andrade are the co-authors of “Fear, Social Projection, and Financial Decision Making,” forthcoming in a special issue on consumers’ financial decision making in the Journal of Marketing Research, November 2011.
The article explains that 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, an investor who is scared 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.
I am curious if individuals’ fear-driven stock market decisions have much of an impact on the market in general. It is my understanding that a rather large percentage of stock market transactions are computer/algorithm generated—no individual involved in the decision.
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