From June 14^th-16^th I attended the Conference on Experimental Finance in Nice to present my paper “Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment”. Besides presenting and enjoying the great city, I came across some interesting presentations and projects, which I want to share with you here. Decisions from experience seems to be a topic that recently gained interested among economists and inspired some nice experiments, two of which I will discuss below, as they are particularly noteworthy:

Ferdinand Langnickel (U Zurich), presented his joined work with Daniel Grosshans and Stefan Zeisberger on “How Investment Performance Affects the Formation and Use of Beliefs”. From their experiment, they concluded that expectation formation on future returns, is influenced by the past experienced returns. In particular, if investors have not invested in a particular stock or if the actual market value of the stock is higher than the price at which it was bought (unrealized paper gains), in these situation investors are able to update their beliefs with new information and use their beliefs to determine their trading decisions. However, in the face of paper losses investors maintain overly optimistic beliefs and incorporate their beliefs less into their actual trading decisions.

Michael Ungeheur (U Mannheim) discussed  “How to overcome correlation neglect” (joint work with Christine Laudenbach and Martin Weber).  The authors applied the decision from experience framework to an investment task between two risky assets, where the correlation between asset was presented in two different ways. Participants either received a description of the probabilities for all possible outcomes of a joint return distribution, or could sample returns from the same joint distribution directly. In the former, participants neglected correlations among the assets. In the latter treatment as the correlation between assets decreased, participants diversified more (as prescribed by standard expected utility theory).