Rank matters–The impact of social competition on portfolio choice

Oege Dijk, Martin Holmen and Michael Kirchler

European Economic Review, 2014, vol. 66, issue C, 97-110

Abstract: Tournament incentives’ schemes have been criticized for inducing excessive risk-taking among financial market participants. In this paper we investigate how relative performance-based incentive schemes and status concerns for higher rank influence portfolio choice in laboratory experiments. We find that both underperformers and over-performers adapt their portfolios to their current relative performance, preferring either positively or negatively skewed assets, respectively. Most importantly, these results hold both when relative performance is instrumental for higher payoffs in a tournament and when it is only intrinsically motivating and not payout-relevant. We find no effects when no relative performance information is given.

Keywords: Portfolio choice; Tournaments; Social competition; Experimental finance (search for similar items in EconPapers)
JEL-codes: C91 G11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:66:y:2014:i:c:p:97-110

DOI: 10.1016/j.euroecorev.2013.11.010

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