Motivated beliefs, social preferences, and limited liability in financial decision-Making

Steffen Ahrens and Ciril Bosch-Rosa

Journal of Banking & Finance, 2023, vol. 154, issue C

Abstract: We conduct a novel experiment to compare how subjects form motivated beliefs in an investor-client setup with varying degrees of liability. Although we do not detect the formation of motivated beliefs, our results indicate that social preferences significantly influence investment decisions and belief formation when investors have no liability. Once we limit our subject pool to those who display social preferences (i.e., those that donate more than zero in a dictator game), we find evidence of motivated belief formation. Additionally, we show that such motivated beliefs result in significantly higher investments. These findings highlight the importance of social preferences in financial decision-making and align with the recent literature on motivated belief formation under limited liability (Barberis, 2013; Bénabou and Tirole, 2016).

Keywords: Moral hazard; Experiment; Motivated beliefs; Social preferences (search for similar items in EconPapers)
JEL-codes: C91 D84 G11 G41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623000717

DOI: 10.1016/j.jbankfin.2023.106846

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