Against all odds: the ‘loyalty’ of small investors

Abstract

The share of small investors leaving the financial market in autumn 2008 was no greater than in previous, smaller crises. Why is there no mass exodus at such junctures? Why do most small investors practice ‘loyalty’ instead of ‘exit’ (Hirschman)? Even more importantly, why do they enter the financial market at all since its ‘hypercomplexity’ exposes them to an experience of confusion and helplessness? Behavioural economics provides some partial answers, but they remain too abstract and ahistorical and give a very reductionist picture of decision-making. In reaction to this incomplete understanding of the ‘loyalty’ puzzle, I will present two important explanatory factors from sociological reasoning: collectively shared stories as reducers of ‘hypercomplexity’ in which small investors’ decision-making is embedded, and the rebuilding of the welfare state, which forces more and more people to become small investors and stay in the market despite serious losses.