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Persistence is futile: Chasing of past performance in repeated investment choices

Weiss-Cohen, L., Newall, P. W. S. & Ayton, P. ORCID: 0000-0003-2285-4608 (2021). Persistence is futile: Chasing of past performance in repeated investment choices. Journal of Experimental Psychology: Applied, 28(2), pp. 341-359. doi: 10.1037/xap0000358


When deciding where to invest, individuals choose mutual funds based on recent past performance, despite standard mandated disclaimers that "past performance does not guarantee future results." Investors would receive better long-term returns by choosing funds with lower fees. We explored the impact of fees and past performance on realistic mutual fund selections across three preregistered repeated-choice experiments (N = 1,600), while manipulating the presence of disclaimers between participants. Participants persistently chased past performance despite the opportunity to learn about the futility of this strategy during 60 repeated decisions with feedback. The standard regulatory-mandated disclaimer did not help most participants, compared to giving no advice at all, and was even counter-productive for participants with low levels of financial literacy. An alternative disclaimer that explicitly highlighted the advantages of fee minimization reliably helped participants. We show how individuals who lack both financial literacy and prior investment experience are the most susceptible to making poor mutual fund choices and can benefit the most from behavioral interventions such as the new disclaimer tested here. We discuss how these results generalize into real-world investment decisions, and how to design more efficient disclaimers that can be used beyond investment choices.

Publication Type: Article
Additional Information: © American Psychological Association, 2021. This paper is not the copy of record and may not exactly replicate the authoritative document published in the APA journal. Please do not copy or cite without author's permission. The final article is available, upon publication, at:
Publisher Keywords: investment decisions; behavioral finance; reinforcement learning; regulatory disclaimers; warning messages; financial literacy
Subjects: B Philosophy. Psychology. Religion > BF Psychology
H Social Sciences > HG Finance
H Social Sciences > HM Sociology
R Medicine > RC Internal medicine > RC0321 Neuroscience. Biological psychiatry. Neuropsychiatry
Departments: School of Health & Psychological Sciences > Psychology
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