You Can't Always Get What You Want---An Experiment on Finance Professionals' Decisions for Others

Abstract

We run an investment experiment with 408 finance professionals (agents) and 550 participants from the general population (clients). We vary the mode of decision-making (investment on one’s own account vs. on behalf of clients) and the agents' incentives (aligned vs. fixed). We find that finance professionals show higher decision-making quality than participants from the general population when investing for themselves. However, when deciding for clients, professionals' decision-making quality does not differ from their clients, irrespective of incentives. Our results further identify challenges in risk communication, as professionals’ portfolios show considerable overlaps in portfolio risk across risk levels requested by clients.

Keywords: Experimental finance, finance professionals, delegated decision-making, risk communication