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Social Status and Risk-Taking in Investment Decisions

Florian Linder (), Michael Kirchler, Stephanie Rosenkranz and Utz Weitzel
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Florian Linder: Max Planck Institute for Research on Collective Goods
Michael Kirchler: University of Innsbruck
Stephanie Rosenkranz: Utrecht University School of Economics

No 2019_07, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

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: G02 G11 D03 C93 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cbe and nep-exp
Date: 2019-05
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