Regret Exploration And Study Of The Emotional Relationship With The Investment Decision-making Behavior

When the traditional financial theory that is based on the assumption of rational choice has to face the challenge of a large number of financial anomalies, paradoxes and behavioral biases within decision-making process, behavioral economics and economic psychology come into being. Based on the research findings in psychology, behavioral economics has broken the assumption of rational choice, and studies decision-making bias from a new angle of investors' psychological deviation. A large number of studies have shown that 70% of mistakes made by investors attribute to psychological factors. Stock market got a relatively late start in China, so it is still not mature enough to resist the risks from all sides. But meanwhile, it also has a great opportunity to avoid some of the psychologically induced errors that have afflicted investors in the West. However, taking advantage of this opportunity will not be easy because psychological-induced errors are deeply entrencheded in the human mind. Therefore, avoiding these errors takes discipline, discipline that is exercised after recognition of vulnerability. This paper will attempt to explore investors'behavioral biases from the perspective of emotional factors so that we can get further understanding of the internal psychological mechanisms of these biases, and find out the underlying logic behind them..In this dissertation, we mainly focus on aspects of developing an effective Regret Measuring Tool, examining the feasibility of adopting Between-subject Design in experiments involving comparison of the difference in regret experience between two choices, as well as the effects of anticipated regret on stock market decisions. The findings of Study 1 and Study 2 are immediately applied in Study 3. Under these three relatively independent themes, we get innovation in measuring tool, research method and research content, and of course, get some new findings and reach some meaningful conclusions.Study 1 explores new effective regret measuring method. We develop a new Regret Scale based on its core features and operational definition defined by many literature researches. Through examing the validity of this newly-built scale and the traditional single-term one, we find that the traditional single-item Regret and Disappointment Scale can not distinguish the experience of regret and disappointment effectively, so its validity is questionable. However, the newly-built "Regret-Disappointment Scale" which has both higher reliability and validity is able to.In study 2, the results show that the difference in regret experience between two choices tends to be exaggerated if Within-subject Design is adopted. We also find the reason why the difference narrowed or disappeared when adopting Between-subject design does not lie in the absence of direct comparison, but rather the absence of a common comparison standard. After introducing a common reference point, Between-subject Design method can really work well in experiments involving comparison of the degree of psychological characteristics.In study 3, the effect of anticipated regret on stock decisions is examined. This study consists of three experiments which are about the stock price anticipation, the trading tendency and the anticipated regret of individual investors respectively. The study shows that for continuous rising or falling stock price trends, there are two kinds of representativeness heuristic biases rooted in investors'mind in anticipation of future price: "gamblers'fallacy" and "hot-hand belief. Overall, the belief of "gamblers'fallacy" is stronger than "hot-hand belief" and leads a dominant position. This phenomenon is particularly salient in the context of falling price trends. The longer the falling stock price trend lasts, the greater the effect of "gamblers'fallacy" shows. The experiments also shows that there is a very strong "disposition effect" among Chinese investors, and this effect is even stronger among female, low-education-level and less-experienced investors. The results also indicate that investors'trading tendency is not completely consistent with their anticipation of stock price, but to a large extent, covariate with their anticipated regret. It implies that when investors'emotion deviates from their cognition, it is emotion that plays a decisive role in the process of decision-making. Therefore, an optimal decision-making model should be one that takes emotion as an important factor into its consideration.