A walk down memory lane: How memories influence stock investment and information processing

Propensity to invest in stocks is highly heterogeneous, with many households avoiding stock market participation altogether. This heterogeneity is difficult to reconcile with standard economic theory. We study the role of memories in shaping investment decisions and in influencing how individuals incorporate stock-related information. Across two experiments, participants invest in a stock and are compensated based on its actual price realization. In the first experiment, we verify that activating memories prior to investing systematically shifts investment behavior. Participants asked to recall stock market–related memories before the investment task make more polarized choices: recalling positive memories increases investment relative to recalling non-positive ones, while activating non-positive memories lowers investment compared with not activating them. The second experiment reveals our central finding: the effect of information critically depends on the type of memory activated. All participants recall a memory before investing, after which some receive positive and truthful information about the stock. Information meaningfully increases investment only among participants who recalled non-personal memories; in contrast, recalling personal memories completely eliminates the response to information. We show that this sharp interaction cannot be explained by changes in beliefs, overconfidence, or mistrust in experts. Instead, it can be rationalized within a selective memory framework.