Sensitivity to Affective Information and Investors' Evaluation of Past Performance: An Eye-tracking Study

In the present work, we used the eye-tracking methodology to investigate how affective reactions influence investment decision making. In addition, we looked at individual differences in terms of people's sensitivity to affective information and how efficiently they regulate it, that is, trait emotional intelligence. We demonstrated that people who are more sensitive to affective information have larger pupil dilation when looking at the past performance of a stock fund. In addition, we also found that participants' larger pupil dilation had an impact on their investment decisions (whether people were more likely to sell their shares, hold on to the investment, or buy more shares). A larger pupil dilation led people to be more consistent and willing to invest more money on a fund regardless from its past performance (positive or negative). We also tested the hypothesis that individuals with a larger pupil dilation should be more influenced by a fund's past performance (e.g., selling their shares more often when the past performance of the fund was negative and buying additional shares more often when the past performance was positive). However, results did not support this explanation. Finally, our data revealed that the effect of individual differences in trait emotional intelligence on investment decisions was significantly mediated by pupil dilation. In the discussion, we explored the relationship between our results and previous evidence on the role of pupil dilation in processing information under uncertainty and the role of affect in decision making.