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
Date Written: August 30, 2018
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: Suggested Citation