A Study Of Disposition Effect And Happiness Of Decision Making In Stock Market: The Effect Of Regulatory Focus

In recent years, due to economic crisis, stock index keeps on fluctuating significantly. People's investment behaviors and states of mind also change with stock index. With the purpose of exploring the patterns of investment behavior and getting insight into the change of states of mind, researchers have conducted a series of studies on factors that influence the decision making and investment attitude in stock market.Dispositional effect has been a broadly concentrated topic in investment decision making area, which describes the investment preference of holding the unprofitable stocks but selling the profitable ones, and the investment states of mind on loss aversion. The study investigated the effect of loss and profit of stocks on decision making preference by employing psychological experiment as well as examined the dispositional effect and loss and profit on investment happiness by stimulating a stock investment context.Regulatory focus, with two dimensions of promotion focus and prevention focus, is one of the hot topics in personality and motive studies. The people of promotion focus are more sensitive to positive results, while the ones of prevention focus pay more attention to negative results. Therefore, there is a certain relationship between regulatory focus and the value function of prospect theory. Based upon this, the study introduced regulatory focus into the study to investigate the effect of regulatory focus on the relations among profit and loss of stocks, investment decision making, dispositional effect and investment happiness.The study invited 189 graduates to complete a psychological experiment, and randomly chose 96 of them to attend the stimulated stock investment. The results indicated that (1) The frame of profit and loss has significant effect on preference of decision making in stock market. Specifically, in loss frame, people are prone to hold stocks; however in profit frame people are prone to sell stocks. (2) The extent of profit and loss and regulatory focus has no effect on preference of decision making. (3) Dispositional effect can be observed in stimulated stock investment, and this kind of effect is more significant on people who are prevention focus than those of promotion focus. (4) Profit and loss in stock market can not predict the happiness of decision making, but people of promotion focus are constantly happier than those of prevention focus during the decision making.The paper also discussed the forth new ideas in the study and raised the conclusion that people of prevention focus were more prone to show dispositional effect in stock investment, so they should concentrate more on the present profit and loss and the development trend of stock price. The paper also discussed the limitations of the study and proposed the further study directions.