Trust and Delegated Investing: A Money Doctors Experiment

Martin Weber, Maximilian Germann and Benjamin Loos

No 12984, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A recent theory by Gennaioli, Shleifer, and Vishny (2015) proposes that trust is an important component for delegated investing. This paper tests the theory in a laboratory experiment. Participants first play a trust game. Participants then act as investors who have to make two separate, delegated investment decisions. Using the amount returned in the trust game as measure of trustworthiness, we show that investors are willing to take substantially more risk when a money manager is more trustworthy, even if this manager charges higher costs. The willingness to take more risk and pay higher costs is increasing in the difference in trustworthiness of the two money managers. This finding is robust to different specifications of the difference in trustworthiness.

Keywords: Trust; Money doctor; Investment decision; Risk aversion (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-exp and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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