Blowing bubbles: Heuristics and biases in the run-up of stock prices

Joseph Johnson, Gerard J. Tellis

Research output: Contribution to journalArticlepeer-review

33 Scopus citations


Ads of stocks and mutual funds typically tout their past performance, despite a disclosure that past performance does not guarantee future returns. Are consumers motivated to buy or sell based on past performance of assets? More generally, do consumers (wrongly) use sequential information about past performance of assets to make suboptimal decisions? Use of this heuristic leads to two well-known biases: the hot hand and the gambler's fallacy. This study proposes a theory of hype that integrates these two biases; that a positive run could inflate prices, while a negative run could depress them, although the pattern could reverse on extended runs. Tests on two experiments and one event study of stock purchases strongly suggest that consumers dump "losers" and buy "winners." The latter phenomenon could lead to hyped-up prices on the stock market for winning stocks. The authors discuss the managerial, public policy, and research implications of the results.

Original languageEnglish (US)
Pages (from-to)486-503
Number of pages18
JournalJournal of the Academy of Marketing Science
Issue number4
StatePublished - Sep 2005


  • Behavioral decision theory
  • Financial products
  • Heuristics and biases
  • Judgment and decision making

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Marketing


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