The disposition effect describes the tendency of investors to sell assets that have increased in value since purchase, and hold those that have not. We analyse the introduction of betting market ‘Cash-Outs’, which provide a continual update – and therefore increase the salience – of bettors’ paper profits/losses on each bet. We find that the introduction of Cash-Out increased the disposition effect in this market, as punters sold their profitable bets with greater frequency than before. We do not, however, find that the disposition effect has any impact on asset prices, either before or after this intervention.
- disposition effect
- prospect theory