D14 - Household Saving; Personal FinanceReturn

We argue that individuals systematically interpret sequences of events in a causal manner. The aim of this article is to show that people do so even if they are aware of the stochastic nature of the respective sequence. The bias can explain some anomalous behaviour of investors in financial markets. Small as well as professional investors may illusorily perceive causality of former random success and future yield. Laboratory experiments testing the interpretation of stochastically occurring events in financial designs as well as analyses of real trading data from financial markets confirm that investors indeed interpret (quasi)random events casually; they make incorrect predictions and they egocentrically allocate responsibility for their success. The causality illusion induces overconfidence, inefficient investment and risk seeking. In the conclusion, we discuss factors that may limit effects of the causality illusion and suggest future areas for research.

The article deals with the art market and key dimensions of investment in art and distinguishes the peculiarities of selection of artworks for investment purposes, covering the main features of the art market. Methodologies of composition of art price indices are analysed. An art market trend analysis is conducted based on statistical data and variations of the Artmarket Global index for the last decade. Using the ARIMA forecasting method, the forecast of artwork price changes in 2014-2015 is conducted. The forecast is presented for the aggregate Artmarket Global index and for different art movements (old masters, impressionism and post-impressionism, modern art, contemporary art) to figure out which of them are the best for investments in the near future. The paper further investigates a new Artistic Power Value (APV) ratio and its adequacy for analysis which makes it easy to assess the suitability of investment in artworks and to compare works of art from various sections. Finally, investment decision-making characteristics of the art market are distinguished.