It is a long-standing fact that households mostly consume and rarely reinvest dividends. Among representative brokerage clients of one of Germany’s largest banks, we find the opposite: 80 percent reinvestments and 12 percent consumption. Of these reinvestments, the majority occurs with a delay after dividends are initially parked as brokerage cash. Motivated by this finding, we study payout modalities (deposits into brokerage accounts, checking accounts, or checks) as a novel mechanism that nudges investors toward reinvesting or consuming dividends. Consistent with a transition from checks to brokerage deposits, we find that the dividend consumption rate in the Consumer Expenditure Survey has decreased substantially over time.

An increasing number of studies depart from the rational expectations assumption to reconcile survey expectations with asset prices. While surveys are helpful to establish a link between subjective beliefs and investment decisions, precise inference about how investors depart from rational expectations can be challenging without relying on strong assumptions. In this article, we provide direct experimental evidence of how systematic distortions in investors’ expectations affect their risk-taking across market cycles. As mechanism, we identify an asymmetry in how individuals update their expectations across boom and bust markets. The documented mechanism is consistent with survey data and provides important implications for recently proposed asset pricing models.