Rankings and Risk-Taking in the Finance Industry
88 Pages Posted: 9 Apr 2016 Last revised: 7 Dec 2018
Date Written: December 1, 2017
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: Suggested Citation