Speaker: Katrin Gödker (U Bocconi)

Title: Trading Narratives (with Christine Laudenbach and Cameron Peng)

When: Monday, 1 June 2026, 11:30 am – 13:00 pm

Where: Oskar-Morgenstern-Platz 1, lecture hall 5 (ground floor) (map)

Abstract:

Standard models of belief formation treat experience as a direct input to expectations, but investors construct narratives around their experience before forming beliefs. We study these narratives using a two-stage survey among retail clients of a German online broker linked to transaction records. Investors provide open-text narratives about recalled stock trades, which we analyze using deterministic text coding, human annotation, and large language models. Our design identifies narrative formation both across randomized buy–sale treatments and within-investor changes in narratives over time for the same realized trade. We document four findings. First, investors disproportionately recall purchases over sales, even conditional on realized trading. Second, buy and sale narratives diverge systematically: buys emphasize fundamentals, future orientation, and broader context; sales emphasize prices, rules, and circumstance. Third, holding the trade fixed, investors reaffirm their thesis after confirming outcomes but shift toward external attributions after disconfirming ones, consistent with motivated reasoning. Fourth, the tendency to recall purchases disproportionately and narratives that decay into shorter, less elaborate forms over time are linked to confidence. Investor beliefs depend not only on what happened, but on how investors narrate what happened.