Do Teams Alleviate or Exacerbate the Extrapolation Bias in the Stock Market?

Last registered on May 30, 2024
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Pre-Trial

Trial Information

General Information

Title
Do Teams Alleviate or Exacerbate the Extrapolation Bias in the Stock Market?
RCT ID
AEARCTR-0013710
Initial registration date
May 29, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
May 30, 2024, 4:02 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
United States of America
Region

Primary Investigator

Name
Vincenzo Pezone
Affiliation
Tilburg University
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Other Primary Investigator(s)

PI Name
Stefano Cassella
PI Affiliation
Tilburg University
Contact Investigator
PI Name
Ricardo Barahona
PI Affiliation
Banco de Espana
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PI Name
Kristy Jansen
PI Affiliation
University of Southern California
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Additional Trial Information

Status
In development
Start date
2024-05-29
End date
2024-06-19
Keywords
Behavior, Finance & Microfinance
Additional Keywords
Extrapolation bias, predictions, teams
JEL code(s)
G41, G10
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
Investors have been found to attribute an excessive role to more recent return realizations when making predictions, even though at low to medium horizons stock returns exhibit little autocorrelation. This tendency is known as “extrapolation bias.” Using an online survey, we test whether team interaction mitigates or amplifies such a bias.
External Link(s)

Registration Citation

Citation
Barahona, Ricardo et al. 2024. "Do Teams Alleviate or Exacerbate the Extrapolation Bias in the Stock Market?." AEA RCT Registry. May 30. https://doi.org/10.1257/rct.13710-1.0
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
Respondents are presented with a series displaying the past realizations of a hypothetical stock return. They are then asked to predict the next realization in the series. Once they make the prediction, the actual realization is displayed, and they are asked to predict the next realization. The task is repeated twenty times.
There are three treatment arms. In the first arm, participants make predictions individually. In the second arm, participants are randomly paired and communicate via a chat box to agree on a joint decision. In the third arm, participants first make individual predictions and then make joint decisions in two-person teams (it is thus a combination of the first two arms). They are compensated based on the accuracy of their predictions.
We will test how the tendency to rely on the most recent realization to make predictions varies between the different treatments.
Participants are then presented with a survey and asked to respond some demographic questions.
Intervention Start Date
2024-05-29
Intervention End Date
2024-06-19

Primary Outcomes

Primary Outcomes (end points)
Stock return forecasts
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Respondents are presented with a series displaying the past realizations of a hypothetical stock return. They are then asked to predict the next realization in the series. Once they make the prediction, the actual realization is displayed, and they are asked to predict the next realization. The task is repeated twenty times.
There are three treatment arms. In the first arm, participants make predictions individually. In the second arm, participants are randomly paired and communicate via a chat box to agree on a joint decision. In the third arm, participants first make individual predictions and then make joint decisions in two-person teams (it is thus a combination of the first two arms). They are compensated based on the accuracy of their predictions.
Participants are then presented with a survey and asked to respond some demographic questions.
The purpose of this experiment is to test how the tendency to rely on the most recent realization to make predictions varies between the different treatments.
Experimental Design Details
Randomization Method
Randomization done in office by a computer
Randomization Unit
Unit
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
1250
Sample size: planned number of observations
1250
Sample size (or number of clusters) by treatment arms
250 for the first arm
500 for the second arm
500 for the third arm
The sample size for arms 2 and 3 is double the sample size in arm 1 to account for the fact that the choices of the participants paired in teams are going to be correlated.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
Institutional Review Board at Tilburg University
IRB Approval Date
2024-04-19
IRB Approval Number
TiSEM_RP1554
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials