Rankings and Risk-Taking in the Finance Industry

88 Pages Posted: 9 Apr 2016 Last revised: 7 Dec 2018

See all articles by Michael Kirchler

Michael Kirchler

University of Innsbruck

Florian Lindner

Max Planck Institute for Research on Collective Goods

Utz Weitzel

VU University Amsterdam; Tinbergen Institute; Radboud University

Date Written: December 1, 2017

Abstract

Rankings are omnipresent in the finance industry, yet the literature is silent on how they impact financial professionals' behavior. Using lab-in-the-field experiments with 657 professionals and lab experiments with 432 students, we investigate how rank incentives affect investment decisions. We find that both rank and tournament incentives increase risk-taking among underperforming professionals, while only tournament incentives affect students. This rank effect is robust to the experimental frame (investment frame versus abstract frame), to payoff consequences (own return versus family return), to social identity priming (private identity versus professional identity), and to professionals' gender (no gender differences among professionals).

Keywords: Experimental finance, behavioral finance, rank incentives, rankings, financial professionals, investment game, framed field experiment, tournament incentives

JEL Classification: G02, G11, D03, C93

Suggested Citation

Kirchler, Michael and Lindner, Florian and Weitzel, Utz, Rankings and Risk-Taking in the Finance Industry (December 1, 2017). Journal of Finance, 2018. Available at SSRN: https://ssrn.com/abstract=2760637 or http://dx.doi.org/10.2139/ssrn.2760637

Michael Kirchler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Florian Lindner

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

HOME PAGE: http://https://sites.google.com/site/florianlindner85/

Utz Weitzel (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Radboud University ( email )

Heyendaalseweg 141
Nijmegen, 6525 AJ
Netherlands

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