Financial markets: The NFT market as a laboratory for behavioural economics

The hype surrounding non-fungible tokens (NFTs) has long since died down. Yet now, more than ever, it is worth taking a closer look at this market. A new study by the University of St.Gallen (HSG) shows that NFT investors systematically make irrational selling decisions. They take profits too early and hold on to loss-making positions for too long. This is a psychological pattern known in financial research as the "disposition effect". Are NFTs merely an extreme case – or do they illustrate particularly clearly how people invest when objective valuations are lacking?

Why classic behavioural patterns from financial psychology also apply to the NFT marketplace

For their study, Andrea Barbon, Charles Milliet und Matthias Weber analysed more than 722,000 transactions from over 180,000 wallets on OpenSea, one of the world’s largest NFT marketplaces. The study thus provides the most comprehensive evidence to date that classic behavioural patterns from financial psychology also apply in digital asset markets – and are even more pronounced there.

With the boom in generative AI, new digital goods, collectables and tokenised assets are currently emerg-ing. At the same time, banks, stock exchanges and regulatory authorities worldwide are working on the tokenisation of real-world assets, ranging from works of art to property. “NFTs are an ideal laboratory for investigating how people invest when objective valuation criteria are largely absent – this is when psychological biases can become particularly evident,” says co-author Prof. Dr. Matthias Weber from the School of Finance at the University of St.Gallen.

Why is the disposition effect three times stronger in the NFT market than on the stock market?

The so-called disposition effect was originally described in relation to stock markets: investors often sell securities at a profit too hastily because they want to lock in their gains. Losses, on the other hand, are held onto in the hope of a future recovery. This behaviour is also evident with NFTs. However, the researchers note that the effect is around three times stronger in the NFT market than in traditional stock markets.

One reason for this is that the market is predominantly made up of private investors. At the same time, NFTs lack objective fundamental data or generally accepted valuation models. As a result, emotions and subjective expectations exert a greater influence.

What illiquidity has to do with poor decision-making

The researchers also developed a new method to measure the disposition effect in illiquid markets. This is because many NFTs cannot be sold immediately; often, there is simply no suitable buyer.

If one takes into account the moment an NFT is put up for sale, rather than waiting for the actual sale to take place, the measured disposition effect is roughly half as large. This shows that a significant proportion of the observed behaviour stems not only from the decisions of sellers, but also from a lack of liquidity and the reluctance of potential buyers.

“Our new measurement method helps to distinguish the influence of human decisions from that of a lack of market liquidity. It could also be applied in the future to art, property or other illiquid markets,” says co-author Andrea Barbon.

Between hope and reality: how NFT investors make decisions

But why is the disposition effect significantly more pronounced in the NFT market than on stock ex-changes? “Around half of the stronger disposition effect can be explained by low liquidity,” says Matthias Weber, the study’s author. Many NFTs do not find a buyer straight away. If the analysis considers the moment an NFT is listed for sale rather than waiting for the sale to complete, the effect is significantly smaller. “Even then, the effect is still greater than on the stock market, but only about one and a half times as strong. We cannot clearly distinguish whether this is due to the characteristics of the investors or to a lack of objective valuation criteria.”

These findings are likely to be relevant to other speculative markets as well. "In the case of memecoins or cryptocurrencies, I would suspect that the effect is also pronounced," says Weber. "With AI shares, it is more difficult to assess — on the one hand, they form part of the traditional stock market, but on the other hand, their valuations are also heavily based on expectations rather than easily quantifiable criteria." Furthermore, the study shows that frequent NFT traders are no less susceptible to the disposition effect than occasional investors, which is different to traditional financial markets.
 
Another finding is that NFT investors realise losses more frequently towards the end of the year. This behaviour, familiar from stock markets and explainable by tax considerations, has thus been demon-strated for the first time in relation to blockchain-based assets.

The key findings at a glance: 

•    NFT investors systematically sell profitable holdings too early and hold on to loss-making positions for too long.
•    The disposition effect is around three times more pronounced in the NFT market than in traditional share trading.
•    A newly developed measurement method enables, for the first time, a more accurate analysis of investor behaviour in illiquid markets.
•    Low market liquidity contributes to the strength of the disposition effect in the NFT market.
•    The method is also applicable to art, property or other tokenised assets.

The study thus extends research into investor behaviour – known in technical jargon as "behavioural finance" – beyond traditional financial markets. It shows that psychological decision-making errors also play a central role in digital asset markets and are likely to become even more significant in the future, given the ongoing tokenisation of the economy. 

More on the working paper: Barbon, Andrea; Milliet, Charles; and Weber, Matthias: The Disposition Effect in the NFT Market (March 16, 2026) at SSRN.