You can’t always get what you want—An experiment on finance professionals' decisions for others

Matthias Stefan (), Martin Holmén (), Felix Holzmeister, Michael Kirchler and Erik Wengström

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

Abstract: To study whether clients benefit from delegating financial investment decisions to an agent, we run an investment allocation experiment with 408 finance professionals (agents) and 550 participants from the general population (clients). In several between-subjects treatments, we vary the mode of decision-making (investment on one's own account vs. investments on behalf of clients) and the agents' incentives (aligned vs. fixed). We find that finance professionals show higher decision-making quality than participants from the general population when investing on their own account. However, when deciding on behalf of clients, professionals' decision-making quality does not significantly differ from their clients', neither when compensated with a fixed payment nor when facing aligned incentives. Our results further identify a considerable challenge in risk communication between agents and clients: While finance professionals tend to take into account principals' desired risk levels, the constructed portfolios by professionals show considerable overlaps in portfolio risk across different risk levels requested by principals. We argue that this result is due to differences in risk perception.

Keywords: Experimental finance; finance professionals; delegated decision-making; risk communication (search for similar items in EconPapers)
JEL-codes: C93 G11 G41 (search for similar items in EconPapers)
Pages: 54
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-cbe, nep-cwa, nep-exp and nep-rmg
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