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  Social Status and Risk-Taking in Investment Decisions

Lindner, F., Kirchler, M., Rosenkranz, S., & Weitzel, U. (2019). Social Status and Risk-Taking in Investment Decisions.

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Item Permalink: http://hdl.handle.net/21.11116/0000-0003-86A7-9 Version Permalink: http://hdl.handle.net/21.11116/0000-0005-0F6C-3
Genre: Paper

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 Creators:
Lindner, Florian1, Author              
Kirchler, Michael, Author
Rosenkranz, Stephanie, Author
Weitzel, Utz, Author
Affiliations:
1Max Planck Institute for Research on Collective Goods, Max Planck Society, ou_2173688              

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Free keywords: experimental finance, behavioral economics, investment game, rank incentives, social status, reputational motives
 JEL: G02 - Behavioral Finance: Underlying Principles
 JEL: G11 - Portfolio Choice; Investment Decisions
 JEL: D03 - Behavioral Microeconomics: Underlying Principles
 JEL: C93 - Field Experiments
 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.

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 Dates: 2019-05-03
 Publication Status: Published online
 Pages: -
 Publishing info: Bonn : Max Planck Institute for Research on Collective Goods, Discussion Paper 2019/7
 Table of Contents: -
 Rev. Method: -
 Identifiers: Other: 2019/07
 Degree: -

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