When a lucky bet turns unlucky

When it comes to investing money in financial markets, people generally assume that investors base their strategies on rational reasoning. After a closer look at how numerological superstition affects financial decision making, researchers from NTU’s Nanyang Business School are now challenging this view.

In Chinese culture, certain digits are believed to be lucky—the number eight, for instance, sounds like the word for “prosperity”. The number four, on the other hand, is deemed unlucky as it sounds like the word for “death”.

Analysing investments in China’s initial public offering market, Assoc Prof Jian Ming and Assoc Prof Zhang Huai, together with a US-based colleague, found that the frequency with which “lucky” numerical stock listing codes were chosen was much higher than what would be expected by chance.

Such superstitious behaviour, however, had the unanticipated effect of turning “lucky” number codes into “unlucky” ones—companies with lucky number codes were initially overvalued by investors but ultimately received lower returns after investors corrected their superstition-based mistake.

The article “Superstition and financial decision making” can be found in Management Science (2016), DOI: 10.1287/mnsc.2016.2584.
This article appeared first in NTU’s research & innovation magazine Pushing Frontiers (issue #13, June 2018).

You may also like...