The Standard Portfolio Choice Problem in Germany

Abstract

We study behavior in an investment experiment conducted with a representative sample of German households. Respondents allocate a fixed budget between a safe asset and a risky asset whose returns are tied to the German stock market and earn monetary returns based on their decisions. Experimental investment choices correlate with beliefs about stock market returns and exhibit desirable external validity: They are a strong predictor for real-life stock market participation. The experimental set-up allows exogenous modification of the risky asset’s return but investments are inelastic except for financially savvy subsamples. A laboratory experiment accompanies the data collection and yields similar results.

Keywords: Stock market expectations, stock market participation, portfolio choice, artefactual field experiment

JEL Classification: D1, D14, D84, G11