Delegated Decision-Making in Finance

We run an online experiment with 408 finance professionals (money managers) and 550 subjects from the general population in Sweden (clients). We examine drivers of clients' delegation decisions, differences in decision-making quality between both groups, and professionals' ability to implement investment portfolios that suit the clients' risk attitudes. We find that clients' trust in money managers increases the likelihood of delegating their investment decisions, whereas decision-making quality is associated with a decrease. We further show that decision-making quality of finance professionals is not significantly higher compared to their clients' when controlling for risk taking. Finally, we observe high variability among professionals' perception of delegated risk levels and overlaps in portfolio risk across self-reported risk-levels of clients. This finding indicates that communicating risk between clients and professionals constitutes a potential pitfall in delegated investment decisions.

Keywords: experimental finance, finance professionals, delegated decision-making

JEL Classification: C93, G11, G41

Suggested Citation: Suggested Citation

Holzmeister, Felix and Holmen, Martin and Kirchler, Michael and Stefan, Matthias and Wengström, Erik, Delegated Decision-Making in Finance (December 5, 2019). Available at SSRN: https://ssrn.com/abstract=3498890 or http://dx.doi.org/10.2139/ssrn.3498890