Empirical evidence of attribute framing: the case of unsophisticated IPO investors

What is it about?

When making decisions, individuals may act in a biased way. I document for the first time empirically that attribute framing causes biased financial decision-making. Attribute framing involves the presentation of a major characteristic of an item in either a positive or a negative way, which either positively or negatively influences the evaluation of the item. I show that individual investors prefer those initial public offerings (IPOs) whose stocks are offered at a low nominal price. However, IPOs with low offer prices are overvalued and their stock prices develop poorly over time.

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