The Impact of Self-Control on Investment Decisions

This paper explores how reduced self-control affects individual
investment behavior in two laboratory tasks. For this purpose, I
exogenously reduce subjects’ self-control using a well-established
psychological treatment. In each task, I find no significant main
treatment effect, but secondary effects consistent with findings on
self-control from other studies and self-control’s potential
relevance in financial markets. In experiment 1, I find no
significant change in the disposition effect following the
manipulation. However, treated participants trade fewer different
shares per round. In experiment 2, I look at the effect of
self-control on myopic loss aversion by implementing a 2×2 design
by varying investment horizon and self-control in a repeated
lottery environment. Average behavior suggests that reduced
self-control increases framing effects, but I cannot reject the
null hypothesis of equal investment levels between the self-control
treatments within each investment frame. Analyzing the dynamics of
decision making in more detail, self-control depleted participants
in the narrow frame reduce their investment levels on average over
time which seems to be driven by more intense reactions to
investment experiences.