Keep Up with the Winners: Experimental Evidence on Risk Taking, Asset Integration, and Peer Effects

52 Pages Posted: 8 Nov 2013

See all articles by Marcel Fafchamps

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

Bereket Kebede

University of East Anglia - School of International Development and CBESS

Daniel John Zizzo

University of Queensland

Multiple version iconThere are 2 versions of this paper

Date Written: November 2013

Abstract

The paper reports the result of an experimental game on asset integration and risk taking. We find evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. We find some evidence of imitation of the risk taking behavior of others that is distinct from learning. Controlling for past winnings, participants who receive a low endowment in a round engage in more risk taking. We also test a 'keeping-up-with-the-Joneses' hypothesis and find some evidence that subjects seek to keep up with winners. Taken together, the evidence is consistent with risk taking tracking a reference point that is affected by social comparisons.

Keywords: asset integration, prospect theory, risk, social comparisons

JEL Classification: C91, D12, D81

Suggested Citation

Fafchamps, Marcel and Kebede, Bereket and Zizzo, Daniel John, Keep Up with the Winners: Experimental Evidence on Risk Taking, Asset Integration, and Peer Effects (November 2013). CEPR Discussion Paper No. DP9714, Available at SSRN: https://ssrn.com/abstract=2351281

Marcel Fafchamps (Contact Author)

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Bereket Kebede

University of East Anglia - School of International Development and CBESS ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

HOME PAGE: http://https://sites.google.com/view/bereket-kebede/

Daniel John Zizzo

University of Queensland ( email )

St Lucia QLD 4072, Australia
Brisbane, Queensland
Australia

HOME PAGE: http://www.danielzizzo.com

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