Does Death Teach Us Wisdom? Evidence from Trading during the COVID-19 Pandemic in India

Does death teach us wisdom or defy the power of reason? Our paper aims to explore this fundamental question by examining investors’ decision framing in their account-level trading on the National Stock Exchange of India during the early pandemic period. We find that the first reported local death from COVID-19 exacerbated the disposition effect among investors. Moreover, investors used less portfolio-level information and resorted more to the magnitude realization of (larger) gains in selling individual stocks. These observations suggest that the cognitive salience of death induces investors to think more narrowly (i.e., it enhances narrow framing). Our findings shed new light on the economic grounds of bounded rationality under the far-reaching impacts of the social environment.