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

21 Pages Posted: 15 Nov 2015

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 12, 2015

Abstract

The paper reports the result of an experimental game on asset integration and risk taking. We find some 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. Controlling for past winnings, participants receiving a low endowment in a round engage in more risk taking. We test a ‘keeping-up-with-the-Joneses’ hypothesis and find that subjects seek to keep up with winners, though not necessarily with average earnings. Overall, the evidence suggests that risk taking tracks a reference point affected by social comparisons.

Keywords: Risk, Asset integration, Social comparisons, Prospect theory

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 12, 2015). European Economic Review, Vol. 79, 2015, Available at SSRN: https://ssrn.com/abstract=2689817

Marcel Fafchamps

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

Stanford, CA 94305
United States

Bereket Kebede (Contact Author)

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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