Working Papers in Economics and Statistics No. 2018-07
Two aspects of social context are central to the finance industry: (i) financial professionals make investment decisions for customers and (ii) social competition/rankings are a pervasive feature. We link both lines of literature to investigate professionals' risk-taking behavior when investing funds for clients. We run online and lab-in-the-field experiments with 965 financial professionals and collect survey evidence from 1,349 respondents. We find that rankings drive professionals' investment behavior: those lagging behind increase risk-taking, but this effect disappears as soon as professionals' incentives are flat. Moreover, we show that professionals' preferences for high rank are stronger than for the general population.
experimental finance behavioral finance social competition rank incentives financial professionals delegated decision making investment game lab-in-the-field experiment