Social Status and Risk-Taking in Investment Decisions

38 Pages Posted: 6 May 2019

See all articles by Florian Lindner

Florian Lindner

Max Planck Institute for Research on Collective Goods

Michael Kirchler

University of Innsbruck

Stephanie Rosenkranz

Utrecht University - School of Economics

Utz Weitzel

VU University Amsterdam; Tinbergen Institute; Radboud University

Date Written: May 2019

Abstract

A pervasive feature in the finance industry is relative performance, which can include extrinsic (money), intrinsic (self-image), and reputational (status) motives. In this paper, we model a portfolio decision with two assets and investigate how reputational motives (i.e., the public announcement of the winners or losers) influence risk-taking in investment decisions vis-a-vis intrinsic motives. We test our hypotheses experimentally with 864 students and 330 financial professionals. We find that reputational motives play a minor role among financial professionals, as the risk-taking of underperformers is already increased due to intrinsic motives. Student behavior, however, is mainly driven by reputational motives with risk-taking levels that come close to those of professionals when winners or losers are announced publicly. This indicates that professionals show higher levels of intrinsic (self-image) incentives to outperform others compared to non-professionals (students), but a similar behavior can be sparked among the latter by adding reputational incentives.

Keywords: experimental finance, behavioral economics, investment game, rank incentives, social status, reputational motives

JEL Classification: G02, G11, D03, C93

Suggested Citation

Lindner, Florian and Kirchler, Michael and Rosenkranz, Stephanie and Weitzel, Utz, Social Status and Risk-Taking in Investment Decisions (May 2019). MPI Collective Goods Discussion Paper, No. 2019/7. Available at SSRN: https://ssrn.com/abstract=3382275 or http://dx.doi.org/10.2139/ssrn.3382275

Florian Lindner (Contact Author)

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/

Michael Kirchler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Stephanie Rosenkranz

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 30 253 9806 (Phone)
+31 30 253 7373 (Fax)

HOME PAGE: http://www.uu.nl/uupublish/defaculteit/persoonlijkepagi/rosenkranz/

Utz Weitzel

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
25
Abstract Views
246
PlumX Metrics