Investor memory

How does memory shape individuals’ financial decisions? We find experimental evidence of a self-serving memory bias. Subjects over-remember their positive investment outcomes and underremember negative ones. In contrast, subjects who did not invest but merely observed the outcomes do not have this bias. The memory bias aspects individual beliefs and decisions to re-invest. After investing, subjects form overly optimistic beliefs about their investment and re-invest even when doing so leads to a lower expected return. The memory bias is relevant for understanding how people learn from experiences in financial markets and has general implications for individual overconfidence and risk-taking.

JEL Classification: D01, D91, G11, G41
Keywords: Memory, Selective Recall, Beliefs, Self-Image, Investor Behavior, Experimental Finance