Shefrin & Statman 1985 (JoF) — disposition effect; narrow-framing / mental accounting of each vendor as separate account

Claim: Shefrin and Statman (1985) identified the disposition effect and proposed four contributing mechanisms: prospect-theory value function over realized gains and losses; mental accounting tracking each position separately; regret avoidance; self-control failure.

Source: Shefrin, H., & Statman, M. (1985). "The Disposition to Sell Winners Too Early and Ride Losers Too Long." Journal of Finance 40(3): 777–790.

Confidence: Verified.

For Candid — narrow framing applied to vendor history: Each prior vendor relationship is booked as a separate mental account. A closed-out loss generates an active aversion to opening a new account in the same category.

In expected-value terms, a previous bad marketing-vendor experience contains zero diagnostic information about a new vendor of different size, methodology, and contract structure. The GC's behaviour is not expected-value rational. It is rational under prospect theory's value function over realized losses, combined with [[rozin-royzman-2001-negativity-dominance]] and the competence-attribution dynamics of [[kim-ferrin-cooper-dirks-2004-competence-vs-integrity-trust-repair]]. The GC is not being unreasonable — he is applying a documented baseline cognitive pattern to a category in which he has accumulated negative-balance accounts.