Trust and Delegated Investing: A Money Doctors Experiment

65 Pages Posted: 14 Jun 2018 Last revised: 11 Sep 2018

See all articles by Maximilian Germann

Maximilian Germann

University of Mannheim - Department of Banking and Finance

Benjamin Loos

Technische Universität München (TUM) - TUM School of Management

Martin Weber

University of Mannheim - Department of Banking and Finance

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Date Written: May 1, 2018

Abstract

A recent theory by Gennaioli, Shleifer, and Vishny (2015) proposes that trust is an important component for delegated investing. This paper tests the theory in a laboratory experiment. Participants first play a trust game. Participants then act as investors who have to make two separate, delegated investment decisions. Using the amount returned in the trust game as measure of trustworthiness, we show that investors are willing to take substantially more risk when a money manager is more trustworthy, even if this manager charges higher costs. The willingness to take more risk and pay higher costs is increasing in the difference in trustworthiness of the two money managers. This finding is robust to different specifications of the difference in trustworthiness.

Keywords: Trust, Money Doctor, Investment Decision, Risk Aversion

JEL Classification: G11, G23

Suggested Citation

Germann, Maximilian and Loos, Benjamin and Weber, Martin, Trust and Delegated Investing: A Money Doctors Experiment (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=3187189 or http://dx.doi.org/10.2139/ssrn.3187189

Maximilian Germann (Contact Author)

University of Mannheim - Department of Banking and Finance ( email )

L9, 1-2
Mannheim, 68161
Germany

Benjamin Loos

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, D-80290
Germany

HOME PAGE: http://https://www.professors.wi.tum.de/digitalfinance/home/

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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