We study investor happiness in a panel survey of brokerage clients at a UK bank. When investors anticipate future happiness, they set their aspirations according to personal portfolio risk, objectives, investment horizon, con dence, and other individual characteristics. They are accurate in their forecasts, only rarely are investors unhappy with outcomes they predicted they would be happy with, and vice versa. However, determinants of experienced happiness only partially correspond to the ones found for anticipated happiness. In particular, relative performance plays an important role investors do not anticipate. Having outperformed other people contributes to investor happiness, as does active trading success.

Karlsson, Loewenstein and Seppi (2009) found that, following market downswings, investors are less likely to login to monitor their retirement portfolios. They concluded that, rather like (apocryphal) ostriches sticking their heads in the sand, investors avoid unpleasant information by reducing portfolio monitoring in response to news of negative market movement. We apply generalised non-linear mixed effects models to test for this selective information monitoring at an individual level in a new sample of active online investors. We see different behaviour in this new sample. We find that investors increase their portfolio monitoring following both positive and daily negative market returns, behaving more like hyper-vigilant meerkats than head-in-the-sand ostriches. This pattern persists for logins not resulting in trades and weekend logins when markets are closed. Moreover, an investor personality trait – neuroticism – moderates the pattern of portfolio monitoring suggesting that market – driven variation in portfolio monitoring is attributable to psychological factors.

In a panel survey of individual investors, we show that investors’ second-order beliefs—their beliefs about the return expectations of other investors—influence investment decisions. Investors who believe others hold more optimistic stock market expectations allocate more of their own portfolio to stocks even after controlling for their own risk and return expectations. However, second-order beliefs are inaccurate and exhibit several well-known psychological biases. We observe both the tendency of investors to believe that their own opinion is relatively more common among the population (false consensus) and that others who hold divergent beliefs are considered to be biased (bias blind spot).

Abstract In comparing risk attitudes across individuals we usually aim to determine whether one can reliably measure a difference in risk attitudes between two individuals, the magnitude of that difference, and what factors should be controlled for to ensure comparisons are meaningful. These comparisons critically depend on the method of risk attitude measurement and elicitation used, and a clear understanding of what the modeled risk attitude represents. Individual risk attitudes are fragile and very specific to domain and framing effects, and thus comparisons should always be made within the same elicitation method. Depending on the measurement method, comparisons can be made on relative or absolute scales. In general, the more precise the measurement, the more sensitive it will be to slight changes in assessment. Psychometric measures are the simplest and most robust, but allow only for ordinal comparisons. Certainty equivalent and utility models of choices can give more precise, but noisy, cardinal estimates of individual risk aversion. The purpose and need for precision of the comparison will often drive the method a researcher chooses for eliciting risk attitudes, and advice is given for researchers seeking to design or analyze such studies.

In a panel survey of private investors, we show that investors use their beliefs about the stock market expectations of others in their investment decisions. These second-order beliefs have a positive effect on investing beyond own risk and return expectations, but they are inaccurate and exhibit several well-known psychological biases. First-order and second-order beliefs differ greatly despite the fact that investors have only a vague idea what other participants are thinking. Among the biases we observe is investors' belief that their own opinion is relatively more common among the population and that others who hold divergent expectations are biased.

The financial crisis caused great uncertainty in global stock markets. In a panel survey of active private investors we collect return expectations and beliefs about the return expectations of others. The crisis is characterized by strongly heterogeneous expectations and inaccurate second-order beliefs. Investors believe their own opinion is relatively more common among the population and assert that investors who disagree with them are biased. We interpret these findings as evidence for a false consensus effect and a bias blind spot in the judgment of investors. Second-order beliefs influence risk taking decisions of investors in allocating money between the stock market and riskless assets. This influence is mediated by the identified judgmental biases. JEL-Classification Codes: C90, G01, G11, G17

What is a "good" return? While a plethora of quantitative metrics for investment performance assessment exist, they say little about how individual investors perceive and assess returns. I employ a longitudinal panel survey of self-directed investors to explore perceptions and qualitative assessments of returns, the market’s returns, and individual characteristics which drive performance assessments. The survey period spans the market crash of late 2008 and the subsequent rally of 2009, allowing me to test effects and inferences over a range rarely available in real-world investment outcomes. I first establish the expected positive relationship between returns and qualitative ratings, including a discontinuous jump at zero. Secondly, I show that the benchmark used to assess performance varies across investors, and does influence their performance assessments. Furthermore, out-performance compared to the local market index significantly increases ratings for both those who use market benchmarks and those who do not, but the effect is stronger for those who do. In a social frame, perceived out performance compared to “other investors” has an equally strong and independent positive effect upon ratings. Perceived financial expertise and actual financial literacy increase subjective ratings, while psychometric risk tolerance and the tendency to “maximize” decreases ratings. Finally, these subjective assessments also influence prospective decisions. Strongly negatively assessed returns increase prospective investment risk taking.