Stakes and Mistakes

How large is the causal impact of stakes on behavioral investment mistakes? We answer this question by examining changes in individual investment behavior following inheritances arising from sudden parental deaths. Our main empirical strategy compares such changes across investors with different inheritances arising from differences in the number of siblings alive at the time of the death. We find that those who receive large inheritances exhibit fewer investment mistakes, but the sensitivity of mistakes to stakes is very small in terms of economic magnitude, even after five years. Tests using untimely deaths of adult siblings before parental bereavement confirm these findings. Mistakes do not disappear when stakes are raised, even when the increase is substantial.