Taking Over Control:An Experimental Analysis of Delegation Avoidance in Risky Choices

Matteo Ploner and Viola Saredi

No 1606, CEEL Working Papers from Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia

Abstract: We experimentally investigate delegation in risky choices, in a principal-agent framework. Agents are asked to build a portfolio for their principals by selecting among prospects that are presented either in a conventional descriptive way or are experienced via exploration (i.e., clicking paradigm). Principals are given the opportunity to take over control and build their own portfolio by paying a fee. We find that portfolios built by principals are more efficient in terms of mean-variance ratio and more ambitious in terms of expected returns than those built by the delegated agents. The higher quality of principal�s portfolios is associated to higher effort exerted in the experience framework by principals than by agents. Principals anticipate differences in portfolio�s performance, but pay a control fee that is generally excessive and negatively impacts on final earnings.

Keywords: Description-Experience Gap, delegated decision-making, control premium, risk taking; experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 D83 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-net and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:trn:utwpce:1606

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