Persistence Of Beliefs In An Investment Experiment

A number of behavioral finance theories posit that investors adhere to prior beliefs in spite of new information. This paper reports the results of an investment experiment which shows that subjects' inferences are biased by their prior beliefs in a manner that depends on investment outcomes. Specifically, survey responses and investment behavior indicate that subjects' perception of new information was more positively biased for their previously favored assets when incurring losses than gains. This asymmetric bias may help explain empirical patterns such as loser momentum and suggests modifications to models of belief persistence in markets.