PORTFOLIO CHOICE AND RISK ATTITUDES: AN EXPERIMENT

Using financial incentives, we study how portfolio choice (how much to invest in a risky asset) depends on three well‐known behavioral phenomena: ambiguity aversion, the illusion of control, and myopic loss aversion. We find evidence that these phenomena are present and test how the level of investm...

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Veröffentlicht in:Economic inquiry Jg. 48; H. 1; S. 133 - 146
Hauptverfasser: CHARNESS, GARY, GNEEZY, URI
Format: Journal Article
Sprache:Englisch
Veröffentlicht: Oxford, UK Blackwell Publishing Ltd 01.01.2010
Wiley-Blackwell
Western Economic Association International
Blackwell Publishers Ltd
Western Economic Association
Schriftenreihe:Economic Inquiry
Schlagworte:
Ambiguity
Analysis
Asset allocation
Assets
Attitudes
Behavior
Confidence
Decision making
Economic incentives
Expected utility
Experiments
Feedback
Financial incentives
Influence
Investment analysis
Investment planning
Investment policy
Investment returns
Investment strategies
Investments
Investors
Lotteries
Monetary incentives
Money
Portfolio investments
Portfolio management
Portfolio performance
Portfolios
Preferences
Probability
Risikopräferenz
Test
USA
Willingness to pay
United States
United States > US
ISSN:0095-2583, 1465-7295
Online-Zugang:Volltext
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Beschreibung
Zusammenfassung:Using financial incentives, we study how portfolio choice (how much to invest in a risky asset) depends on three well‐known behavioral phenomena: ambiguity aversion, the illusion of control, and myopic loss aversion. We find evidence that these phenomena are present and test how the level of investment is affected by these motivations; at the same time, we investigate whether participants are willing to explicitly pay a small sum of money to indulge preferences for less ambiguity, more control, or more frequent feedback/opportunities to choose the investment level. First, the observed preference for “control” did not affect investment behavior and in fact disappeared when participants were asked to actually pay to gain more control. Second, while people were indeed willing to pay for less ambiguity, the level of ambiguity did not influence investment levels. Finally, participants were willing to pay to have more frequent feedback opportunities to change their portfolio, even though prior research has shown that people invest less in risky assets (and earn less) in this case. (JEL B49, C91, D81, G11, G19)
Bibliographie:ark:/67375/WNG-248GG8C1-T
istex:74F82DCFA7B2468991E01C52DFB0858222ED8995
ArticleID:ECIN219
We thank Matthew Rabin, Richard Thaler, Martin Weber, and seminar participants for their comments and suggestions. All errors are our own.
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ISSN:0095-2583
1465-7295
DOI:10.1111/j.1465-7295.2009.00219.x