Time Delay and Investment Decisions: Evidence from An Experiment in Tanzania

Nikolov, Plamen. "Time Delay and Investment Decisions: Evidence from An Experiment in Tanzania." Economics Bulletin 38, no. 2 (2018): 1124-1137

15 Pages Posted: 2 Jul 2019 Last revised: 25 Jul 2019

See all articles by Plamen Nikolov

Plamen Nikolov

Harvard University; SUNY at Binghamton, Department of Economics; IZA Institute of Labor Economics; Global Labor Organization (GLO)

Date Written: August 30, 2018

Abstract

Attitudes toward risk underlie virtually every important economic decision an individual makes. In this experimental study, I examine how introducing a time delay into the execution of an investment plan influences individuals’ risk preferences. The field experiment proceeded in three stages: a decision stage, an execution stage and a payout stage. At the outset, in the Decision Stage (Stage 1), each subject was asked to make an investment plan by splitting a monetary investment amount between a risky asset and a safe asset. Subjects were informed that the investment plans they made in the Decision Stage are binding and will be executed during the Execution Stage (Stage 2). The Payout Stage (Stage 3) was the payout date. The timing of the Decision Stage and Payout Stage was the same for each subject, but the timing of the Execution Stage varied experimentally. I find that individuals who were assigned to execute their investment plans later (i.e., for whom there was a greater delay prior to the Execution Stage) invested a greater amount in the risky asset during the Decision Stage.

Keywords: risk tolerance, time inconsistent preferences, risk preferences, investments, endowment effect, reference-dependence, prospect theory, behavioral economics, developing countries, temporal construal, field experiment, Africa

JEL Classification: D90, D91, D15, D25, C93, G11, E22, D81, N27, E49

Suggested Citation

Nikolov, Plamen, Time Delay and Investment Decisions: Evidence from An Experiment in Tanzania (August 30, 2018). Nikolov, Plamen. "Time Delay and Investment Decisions: Evidence from An Experiment in Tanzania." Economics Bulletin 38, no. 2 (2018): 1124-1137. Available at SSRN: https://ssrn.com/abstract=3413244 or http://dx.doi.org/10.2139/ssrn.3413244

Plamen Nikolov (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

SUNY at Binghamton, Department of Economics ( email )

Binghamton, NY 13902-6000
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

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