Asymmetric Learning from Financial Information

This study asks whether investors learn differently from gains versus losses, whether learning is better or worse when people are actively investing in a security or passively observing its payoffs, and whether there are personal characteristics that drive learning performance. Experimental evidence shows that the ability to learn from financial information is worse in the loss domain, especially if investors have personally experienced the prior outcomes of the assets considered. Heterogeneity in learning errors across investors is particularly high following negative outcomes. Learning performance is determined by financial literacy and by a genetic factor related to memory and emotion control. I thank Torben Andersen, Nicholas Barberis, Marianne Bertrand, Eric Hughson, Jonathan Parker, Richard Todd, Viktor Todorov, seminar participants at Northwestern University, and participants at the 2011 Society for Neuroeconomics annual meeting, the 2012 Western Finance Association meeting, and the 2012 Boulder Consumer Finance meeting for helpful comments and discussion. Alexandra Baleanu provided excellent research assistance. All remaining errors are mine. This work received generous funding from the Zell Center for Risk Research at the Kellogg School of Management. Department of Finance, Kellogg School of Management, Northwestern University, 2001 Sheridan Rd., Evanston, IL 60208-2001, [email protected].