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An experimental study of influences of performance-related payments on timing of delegated stock purchases

Journal article
Authors Tommy Gärling
Maria Andersson
Martin Hedesström
Anders Biel
Published in Journal of Behavioral Finance
Volume 18
Issue 1
Pages 78-85
ISSN 1542-7560
Publication year 2017
Published at Department of Psychology
Centre for Finance
Department of Economics
Pages 78-85
Language en
Keywords stock purchase; bonus; bounded rationality; heuristic judgement; hyperbolic time discounting
Subject categories Applied Psychology, Economics


Performance-related bonuses are important tools for investment organizations to incentivize stock traders. Yet, two experiments indicate that bonuses rewarding short-term performance may lead to worse timing of purchases. We propose that hyperbolic time discounting make participants set lower aspired purchase prices for short-term (decreasing percentage) bonuses than long-term (increasing percentage) bonuses. For this reason purchases are made earlier for decreasing than increasing percentage bonuses, earlier for decreasing than random prices, and earlier for high than low price volatility. Neither purchases at lowest price or highest bonus are attained. Hyperbolic time discounting may account for bubbles observed in experimental double-auction markets.

Page Manager: Webmaster|Last update: 9/11/2012

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