The Disposition Effect, Individual Differences, Stability, and Learning: An Experimental Investigation∗ Martin Weber and Frank Welfens1 University of Mannheim This version: December 2005 Abstract: We test experimentally for individual differences, stability, and learning in individual level disposition effects. While we observe the disposi- tion effect on aggregate, the extent to which a single decision maker is af- fected varies considerably across subjects. We find overwhelming evidence for stability of individual disposition effects within one task, across different individual choice tasks, as well as across different parts of the experiment, i.e. across time. Interaction between subjects, however, seems to impact individual trading behavior to such an extend that stability is no longer present. In addi- tion, learning attenuates the magnitude of the effect strongly within tasks and over time. JEL code: C91, C92, D14, D81, G11, G12 ∗ Financial support from the Deutsche Forschungsgemeinschaft, Sonderforschungsgemeinschaft 504, at the Uni- versity of Mannheim is gratefully acknowledged. Helpful comments were obtained from participants at the 2005 International Meeting on Behavioral and Experimental Economics (IMEBE). 1 Martin Weber is from the Lehrstuhl für Bankbetriebslehre, Universität Mannheim, L5, 2, 68131 Mannheim and CEPR, London. E-Mail:
[email protected]. Frank Welfens is from the Lehrstuhl für Bank- betriebslehre, Universität Mannheim, L5, 2, 68131 Mannheim. E-Mail:
[email protected]. 1 Introduction Behavioral finance builds on the fact that individual as well as professional investors in some situations systematically violate neoclassic theory. Thereby it commonly assumes that investors – depending e.g. on their financial sophistication – exhibit these biases to different degrees and that the magnitude of an individual bias is stable over different market regimes, different economic situations, and time.