Greed and Investor Behaviour: Evidence from Experimental Studies on the Disposition Effect, Salience, and Framing
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Yu, Haoyang
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Nguyen, Nhut Hoang
Gilbert, Aaron
Kapitan, Sommer
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Auckland University of Technology
Abstract
This thesis investigates how greed shapes investor behaviour in the realisation of gains and losses and how this relationship changes across different informational contexts. The research focuses on the disposition effect (DE), which refers to investors’ tendency to sell winning assets too early while holding losing assets for too long. Although the disposition effect has been widely documented, the underlying motivational and contextual mechanisms that sustain it remain incompletely understood. Drawing on insights from realisation utility and salience theory, this thesis develops an integrated behavioural framework showing how greed interacts with perceptual salience and decision framing to influence biased realisation behaviour.
The analysis is based on a series of three controlled experimental studies involving 244 participants (across the three experiments). All experiments employed computerised stock trading simulation implemented in z-Tree and post-experiment psychological surveys administered through Qualtrics. This consistent design allows a direct comparison of behavioural patterns across treatments while isolating the specific mechanisms under investigation.
Study 1 serves as the baseline analysis and examines the relationship between greed and the disposition effect. Participants traded in a standard environment where prices were displayed in a neutral format and without return displays. The results show, for the first time in the literature, that greed is a strong and statistically significant predictor of the disposition effect. Greedy investors tend to realise gains more frequently and delay selling losses even when controlling for loss aversion, risk preference, and trading experience. These findings confirm that greed is an independent motivational force that drives biased behaviour, and that the desire for immediate reward realisation can systematically distort selling decisions.
Study 2 extends the analysis by introducing visual salience through colour-coded price displays. Participants traded under identical market conditions except that price changes were shown in red (negative changes) or green (positive changes). The results show that colour strongly influences trading behaviour and interacts with greed. Green, signalling gains, heightens the tendency of greedy investors to sell winners. Red, signalling losses, reduces resistance to realising losing positions. The findings suggest that the behavioural expression of greed differs across visual salience conditions, consistent with the view that salient visual signals condition how motivational tendencies are reflected in trading behaviour. This study demonstrates that trading interfaces, which routinely employ colour cues to convey performance, are behaviourally active and can directly shaping investor decisions.
Study 3 examines how numerical framing and price magnitude shape the disposition effect, and how greed moderates these contextual influences. In the low-price regime, asset prices began at $30 with a $600 trading endowment, while in the high-price regime, asset prices began at $300 with a $6,000 endowment. Within each regime, returns were displayed either in dollar or percentage terms. The results show that percentage framing significantly amplifies the disposition effect among greedy investors, especially for low-priced assets, whereas dollar framing in high-price regimes amplifies it. These findings are consistent with the predictions of salience theory by Bordalo et al. (2012) and realisation-utility theory by Barberis and Xiong (2012), confirming that the cognitive salience of numerical information interacts with motivational forces to shape realisation behaviour.
This thesis provides an analysis of how greed and contextual salience jointly shape the disposition effect. It contributes to behavioural finance theory by integrating motivational and cognitive perspectives, showing that investor biases stem from the interaction between internal drives and external representations. Empirically, the study identifies how specific informational and visual cues, such as colour, scale, and framing format, systematically influence realisation behaviour.
The research also has practical implications for investors, trading-platform designers, and regulators. The findings reveal that trading environments are psychologically active components of decision-making. Small variations in how information is presented can meaningfully affect investor attention and behaviour. Platform designers should therefore consider these behavioural effects, regulators should set clearer standards for performance presentation, and investor education could highlight framing and salience effects to help traders manage the influence of greed.
Overall, this thesis advances understanding of how human motivation and information architecture jointly shape trading outcomes and offers guidance for creating more disciplined and welfare-enhancing investment environments. It also offers a foundation for designing trading environments that foster more disciplined and welfare-enhancing investment behaviour.