Marcel Quint

Working Papers

The Interaction of Memory Imperfections (with Johannes Maier) 

Abstract: While interaction effects play a prominent role in classical economics, there is not much known about the way how different behavioral biases interact. This paper sheds some light on this question in the domain of memory. We relax the pre-existing dichotomy of the two main recall biases that have been identified in the literature – motivated and similarity-based recall – and investigate whether they complement or substitute each other. We propose a “System 1-System 2” model of recall that accommodates complements or substitutes depending on the relative importance of both systems and the resulting cognitive effort exerted on recall. Our model predicts that the two recall biases become more complementary with an increasing importance of unconscious System 1 over conscious System 2 and hence lower exerted effort. Intuitively, agents are more able to exploit similarity to selfservingly bias their recall when they spend less cognitive resources on it. We confirm this (and other) predictions of our model in a lab experiment. We find that the two recall biases are complements, and especially so for low effort levels. Furthermore, we find that the interaction of both recall biases determines subjects’ belief formation and actions well beyond non-Bayesian updating.

Counterfactual Thinking Among Retail Investors (with Lukas Mertes) 

Abstract: We show that individuals consider counterfactual outcomes when evaluating their investment decisions. Using individual investor trading data, we find that the likelihood of selling a stock is higher for stocks that performed better than an alternative investment benchmark than for stocks that performed worse. This effect exists when considering the overall market as well as the focal stock's industry as an alternative investment. It is distinct from (and can even subsume) the Disposition Effect, the Portfolio-Driven Disposition Effect, the Rank Effect, and cannot be explained by stock characteristics. This evidence thus highlights that individuals do not evaluate financial investments in isolation, but in relation to alternative investments they could have made instead. 

Work in Progress

Motivated Reference Points in Financial Decisions (with Lukas Mertes)

Abstract: When evaluating their investment performance, investors can compare their outcomes to multiple potential reference points, such as alternative investments, purchase prices, market indices, or their own expectations. However, little is known about how investors select among these reference points. This paper proposes a model in which investors choose reference points ex-post to minimize regret, creating a trade-off between accuracy and regret avoidance. We aim to conduct an online experiment to test the predictions of our model, particularly whether investors shift their reference points towards less regrettable comparisons when investment performance falls short of expectations, despite the associated cost of holding distorted beliefs. This mechanism should lead investors to hold overly optimistic beliefs about  their own investments, ultimately affecting their trading behavior.

Climate Experiences and Investor Behavior

Abstract: Beliefs about future risks are often shaped by both information and personal experience. This paper investigates how experiencing climate catastrophes shapes individual beliefs and investment behavior related to climate change. Using survey data from the US, I show that experiencing a climate catastrophe significantly increases concerns about climate change even years after the event occurred. To isolate the role of personal experience from that of information, I compare beliefs in neighborhoods directly affected by climate catastrophes with adjacent neighborhoods that experience similar informational exposure but are physically unaffected. The results confirm that personal experience significantly influences beliefs beyond informational effects alone, with stronger effects for more recent and frequently experienced catastrophes. I further investigate whether these experiences cause a belief-driven shift in investment behavior and lead investors to adjust their portfolios towards companies with smaller carbon footprints. However, I find no evidence that personal experiences of climate catastrophes cause changes in investment behavior.