Taiwanese Investors Favor the Number Eight—and They Pay for It

Superstition is a terrible investment strategy.


In China, the collective aversion to the number four—when pronounced, it sounds like the word for “death”—is so strong that most buildings skip right from the third floor to the fifth. As long as Chinese developers are comfortable defying numerical order, it’s surprising that they haven’t tried slipping an extra eighth floor into four's place—“eight” sounds like “wealth,” and is valued accordingly. Similarly, in America, triskaidekaphobia sometimes prompts developers to omit 13th floors.

The labeling of a building's floors is pretty inconsequential, but cultural attitudes about certain numbers can have surprising economic consequences. In the U.S., it was once estimated that Friday the 13th accounted for nearly $1 billion of lost business. After their IPOs, Chinese firms whose new listing codes contain one or more eights are traded at a premium. Chinese people are willing to pay less than they otherwise would for apartments whose unit numbers end in four. And Taiwanese consumers were more likely to purchase a radio priced at 888 dollars than the same radio priced at 777 dollars.

Investors might fancy themselves immune to logical fallacies like these, but they can be just as superstitious as everyone else: A recent study focusing on the Taiwanese stock market revealed that individual investors are more than 50 percent more likely to order stocks in quantities ending in eight than in quantities ending in four (for example, preferring to order 1,408 shares instead of 1,404). And on top of that, according to a calculation by The Economist, the annual returns of the most superstitious traders trailed those of their coldly rational counterparts by nearly 10 percent.

Superstitious Investors Are Worse Investors
Bhattacharya et al./Joe Pinsker

To explore the phenomenon of superstitious investing, the researchers built a “superstition index” to measure investors’ behavior. Investors who most strongly favored eights and most violently avoided fours received the highest scores. When they calculated this index for various investors, the researchers saw that only individual investors had significantly high scores; institutional investors, who rely more heavily on automation and algorithms, didn’t let their superstitions sway them. (0's and 5's are longstanding favorites, regardless of culture.)

Individual Investors Favor Eights and Shun Fours…
Bhattacharya et al.
…and Traders Who Rely on Automation Were Indifferent
Bhattacharya et al.

The researchers then turned to what explained the high cost of superstitious investing. They noticed that it wasn’t just that traders with the highest superstition indexes were seeing subpar returns on orders ending in fours or eights—they were seeing subpar returns on all of their trades. As a result, the study’s authors concluded, diplomatically, that this group suffers from “a general cognitive disability in making financial decisions.”

In the bigger picture, though, superstitious investors aren’t the only ones who fall victim to numerical traps. “Price clustering” is a well-documented phenomenon in which people prefer whole numbers most strongly and .5’s over other tenths, and it shows up in just about every financial asset market. (This explains why, in the graph above tracking individual investors' orders, quantities ending in 0 or 5 were requested nearly 40 percent of the time.) The human preference for round, clean numbers is widespread, but it’s now clear that region-specific cultural biases can exert pressure on price clustering as well.

Superstitious investors are generally bad investors, and that’s something that institutional investors bank on. But there was a sliver of hope for the irrational: The researchers, after tracking their poor superstitious subjects for a couple of years, found that over time, investors became less likely to rely on cultural constructs in deciding how to use their money.