 A behavioral theory of the effect of the risk-free rate on the demand for risky assetsYoav Ganzach and Avi Wohl Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2018, vol. 76, issue C, 23-27 Abstract: We suggest a behavioral perspective for the demand for risky assets (DRA) in which the risk-free rate affects this demand: the lower the risk-free rate the higher the demand for risky assets. This perspective is based on the idea that changes in return exhibit decreasing sensitivity, that is, the impact of a change diminishes with the distance from the status quo (or reference point). We begin by demonstrating that when the risk-free rate decreases, DRA increases even among sophisticated subjects. We then provide support for our behavioral model in three experiments in which the risk-free rate is manipulated and demand for risky assets is measured. Experiments 1 and 2 rule out alternative explanations, demonstrating that decreasing sensitivity underlies, at least in part, the effect of the risk-free rate on DRA. Experiment 3 demonstrates the role of decreasing sensitivity when returns are presented in terms of monetary payoffs rather than interest rates. Date: 2018 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:76:y:2018:i:c:p:23-27 DOI: 10.1016/j.socec.2018.06.006 Access Statistics for this article Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Pablo Brañas Garza More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier |
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