Behavior in a Simplified Stock Market: The Status Quo Bias, the Disposition Effect and the Ostrich Effect

Specific behavioral tendencies cause investors to deviate from optimal investing. We investigate three such tendencies in a simplified stock market. Subjects rarely follow the fully profit-maximizing strategy, most commonly by ignoring information and continuing to hold on to a stock regardless of its performance. The results support the predictions of the status quo bias, but not the ostrich effect or the disposition effect. These deviations cost subjects a substantial portion of their potential earnings.