Premature infatuation and commitment in individual investing decisions

• Published in: Journal of economic psychology 2019-06, Vol.72, p.245-259
• Main Authors: Posavac, Steven S., Ratchford, Mark, Bollen, Nicolas P.B., Sanbonmatsu, David M.
• Format: Article
• Language: English
• Subjects: Financial choice; Information search; Investing; Selective processing
• ISSN: 0167-4870; 1872-7719
• DOI: 10.1016/j.joep.2019.04.006

•Premature infatuation in investing occurs when a focal option comes to be preferred.•Financial decisions may be suboptimal when governed by premature infatuation.•Selective information processing makes focal investments appear overly attractive.•Financial expertise does not protect investors from the premature infatuation effect.•Retirement plan managers can use this bias to help investors make better choices. This research documents a premature infatuation effect in financial judgment and choice, and seeks to understand why it occurs. In many financial decisions, one potential investment choice becomes focal. The premature infatuation effect occurs when a focal investment possibility comes to be overvalued simply because it has come to the fore. Three experiments demonstrate that the premature infatuation effect influences financial judgments, choice intentions, and non-hypothetical decisions with financial consequences, and can drive suboptimal decisions. We show that financial expertise does not insulate individuals from this robust tendency. Non-intrusive process tracing methodology demonstrates that the tendency to engage in selective processing underlies the premature infatuation effect. We conclude by discussing how one can avoid falling victim to this bias, and the counterintuitive organizational implication that managers of firms’ retirement plans can leverage premature infatuation to nudge employees to make better choices.