Peer Effects and Risk Sharing in Experimental Asset Markets

European Economic Review, Forthcoming

Tinbergen Institute Discussion Paper 2019-027/I

SAFE Working Paper No. 67

37 Pages Posted: 25 May 2019

See all articles by Paul Gortner

Paul Gortner

Goethe University Frankfurt - Research Center SAFE

Joel J. van der Weele

University of Amsterdam - Center for Experimental Economics and political Decision making (CREED); Tinbergen Institute; Center for Financial Studies (CFS)

Date Written: March 31, 2019

Abstract

We investigate the effect of introducing information about peer portfolios in an experimental Arrow-Debreu economy. Confirming the prediction of a general equilibrium model with inequality averse preferences, we find that peer information leads to reduced variation in payoffs within peer groups. Information also improves risk sharing, as the data suggests that experiencing earnings deviations from peers induces a shift to more balanced portfolios. In a treatment where we highlight the highest earner, we observe a reduction in risk sharing, while highlighting the lowest earner has no effects compared to providing neutral information. Our results indicate that the presence of social information and its framing is an important determinant of equilibrium in financial markets.

Keywords: peer effects, laboratory experiments, risk taking, asset markets

JEL Classification: C92, D53, G11

Suggested Citation

Gortner, Paul and van der Weele, Joel J., Peer Effects and Risk Sharing in Experimental Asset Markets (March 31, 2019). European Economic Review, Forthcoming; Tinbergen Institute Discussion Paper 2019-027/I; SAFE Working Paper No. 67. Available at SSRN: https://ssrn.com/abstract=3367558

Paul Gortner

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Joel J. Van der Weele (Contact Author)

University of Amsterdam - Center for Experimental Economics and political Decision making (CREED) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

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

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

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