The double-channeled effects of experienced payoffs in investment decisions

Experiences have significant influences on subsequent decisions. This chapter demonstrates, in a controlled lab experiment of investment decision making, that subjects engaged in reinforcement learning. A further investigation of the mechanism by directly eliciting beliefs reveals that participants were more optimistic about an asset after gaining from it than after losing. This happened even though experienced payoffs contained no informational value beyond the descriptive information provided in the experiment, and there was clear tension between Bayesian and reinforcement learning. These findings suggest that double-channeled effects (belief-based and nonbelief-based) of experienced payoffs could underlie investors' reinforcement learning.