Designing trading schemes to overcome the disposition effect
A cognitive training scheme to overcome the disposition effect
We propose and test a novel cognitive training scheme to overcome the disposition effect. The scheme exploits theory of mind, which is the ability to form correct beliefs of others’ intentions by abstracting from one’s own situation. Our training scheme achieves a 85.4 percent reduction in the disposition effect for participants who scored above the median on clinical tests of social cognition. Gaze fixations show how attention is drawn away from the wrong cue, the acquisition price, already from the first intervention. In line with typical washout effects in cognitive training schemes, reinforcement is needed, and renders it more successful.
Peter Bossaerts, Kristian Rotaru