Stakes and Mistakes
Dr. Abhiroop Mukherjee
Liwei Huang Associate Professor of Business
Department of Finance
Hong Kong University of Science & Technology
How large is the causal impact of stakes on behavioral investment mistakes? We answer this question by examining changes in individual investment behavior following inheritances arising from sudden parental deaths. We find that those who receive large inheritances exhibit fewer investment mistakes, but the sensitivity of mistakes to stakes is very small in terms of economic magnitude, even after five years. Tests using premature deaths of adult siblings before parental bereavement, which lead to exogenous differences in bequest sizes, confirm these findings. Mistakes do not disappear when stakes are raised, even when the increase is substantial.
