The effect of setting goals and emotions on asset allocation decisions

• Published in: Managerial finance Vol. 38; no. 11; pp. 1008 - 1031
• Main Authors: Sundali, James A, Stone, Gregory R, Guerrero, Federico L
• Format: Journal Article
• Language: English
• Published: Patrington Emerald Group Publishing Limited 21.09.2012; Emerald
• Subjects: Alliances; Anlageverhalten; Asset allocation; Decision making; Emotions; Expected utility; Experiments; Goal setting; Investment advisors; Investment policy; Investors; Persönlichkeitspsychologie; Portfolio management; Portfolio performance; Studies; Test; Individual behaviour; Assets management; Individual psychology; Asset allocation; Investments; Behavioral finance
• ISSN: 0307-4358; 1758-7743
• DOI: 10.1108/03074351211266766

Purpose - The purpose of this paper is to conduct a controlled experiment to examine the effect of goal setting and affect framed feedback on repeated asset allocation investment decisions.Design methodology approach - The design of the experiment is a 2×2 between subject design. Subjects allocated monies among four investments for 20 periods. One manipulation varied whether subjects received performance feedback in the form of a happy or sad face, while another manipulation varied whether subjects set a financial goal for themselves and received goal attainment performance feedback.Findings - The main findings include: subjects initially allocate assets in a manner roughly consistent with their stated preference for risk; prior year asset performance leads subjects to make significant changes in portfolio asset allocation in a manner consistent with beliefs of positive autocorrelation in asset returns; and the addition of happy or sad faces to performance feedback information leads to even greater changes in asset allocation.Originality value - Using ideas from the theory on the self-regulation of behavior and the role of affect in decision making, the authors develop an original framework to account for the results.