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The report, Inaction Inertia in the Stock Market by Orit Tykocinski and Roni Israel, provides an in-depth study of traders’ behavior when in the situation of facing the choice of keeping or selling a stock after losing a better opportunity. The result offers psychological reasoning for the concept of inaction inertia. Although the focus group for the study consisted of students, the research is strong, with well-based structuring of the situation, analysis of the expert reports’ readings, and concluding psychological aspects.
The study groups consisted of students who were put into different virtual stock market situations. Those situations included large or small losses after the ability or inability to sell a stock at the point of increasing value, thus creating four groups of students. This was a good decision, for the results seem more accurate than in a situation with a smaller number of variations. For instance, if there were only the case of a large loss following the ability to sell the stock, the research would not provide a difference in psychological patterns among the groups who faced large or small losses. Besides, the option of the inability to sell the stock beforehand and then being confronted with loss also yields valuable results, since it provides an opportunity to trace whether stock market players take a loss more easily if they were not able to act previously.
Another strong side of the study lies in providing expert reports during the process of decision-making. These reports explained the reasons for the price increase or decrease. The important point was to analyze the number of time students spent reading them. This strategy was helpful in terms of understanding how stock traders feel about receiving information that reminds them of their losses. This time-based approach seems to be quite accurate when reaching conclusions about the reasons for inaction inertia.
The study draws a definitive conclusion on the outcomes of the loss situation as well. It predicts that traders will keep losing future opportunities because they do not want to feel regret for possibly wrong decisions. It is commonly supposed that economic decisions are made based solely on knowledge and extensive analysis. Although these research results do not illustrate the complete process of decision-making, they may emphasize the importance of emotions, especially negative ones.
The only weakness of this study lies in the choice of the focus group. Although students may show more interest in such methods of collecting data, they may not be the perfect people for analysis. The student’s major is not stated, so we do not know whether they have any knowledge of the stock market at all. Moreover, even if their primary subject of study in economics, it is quite unlikely that they have any experience in the stock market. Finally, it is unknown whether all of them were motivated to take the task seriously. It would be better to use the help of real stock traders for this research.
Nevertheless, the research provides extensive data on the topic. Despite the choice of the study group, this report has a reasonable situation structure, content, and conclusions and creates an opportunity to identify emotions as one of the key factors for making decisions. It will be helpful for other scholars to use its results in analyzing the stock market.
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