Perceptions of Luck and Investment Behavior : A quantitative study examining cognitive biases in ﬁnancial decision making
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- Master Thesis 
The purpose of this thesis is to conduct research on the implication of luck, perceptions of luck and correction of misperceptions on investment behavior. Previous research suggests that luck plays a role in the behavior of individuals and their investment decision making, however perceptions of luck is a field of study lacking research. To investigate these relationships, we conducted an experiment consisting of two tasks: (l) a die roll game and (2) an investment game. The experiment was distributed to a general population sample in the U.S. We analyze the actual and reported outcomes from the die roll game, and group individuals into different categories according to their perceived and actual luck. To estimate the correlation between different luck measures and investment behavior, we utilize ordinary least squares and logistic regression models. We find that individuals who were unlucky in the first game invest 20% more on average, while individuals who are optimistic regarding their own luck in the first game invest 11% less on average. Individuals who were pessimistic regarding their own luck but receive information confirming that they were luckier than they thought, invest 19% less on average. The results illustrate that perceptions of luck matter in investment decisions. In particular, our findings suggest that investors are subject to Gambler's Fallacy - meaning that people think lucky events are more likely to occur after unlucky events - and that our applied information treatment can help pessimistic individuals avoid this fallacy.