Social Motives and Risk-Taking in Investment Decisions

Florian Lindner (), Michael Kirchler, Stephanie Rosenkranz and Utz Weitzel

Journal of Economic Dynamics and Control, 2021, vol. 127, issue C

Abstract: A pervasive feature in the finance industry is relative performance, which can include extrinsic (money), intrinsic (self-image), and reputational (status) motives. In this paper, we model a portfolio decision with two assets and investigate how reputational motives (i.e., the public announcement of the winners or losers) influence risk-taking in investment decisions vis-a-vis intrinsic motives. We test our hypotheses experimentally with 864 students and 330 financial professionals. We find that reputational motives play a minor role among financial professionals, as the risk-taking of underperformers is already increased due to intrinsic motives. Student behavior, however, is mainly driven by reputational motives with risk-taking levels that come close to those of professionals when winners or losers are announced publicly. This indicates that professionals show higher levels of intrinsic (self-image) incentives to outperform others compared to non-professionals (students), but a similar behavior can be sparked among the latter by adding reputational incentives.

Keywords: Experimental finance; Behavioral economics; Investment game; Rank incentives; Social status; Reputational motives (search for similar items in EconPapers)
JEL-codes: C93 D9 G11 G2 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Social Motives and Risk-Taking in Investment Decisions (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:127:y:2021:i:c:s0165188921000518

DOI: 10.1016/j.jedc.2021.104116

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