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- Gärling, Tommy, 1941, et al.
(author)
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Fast and Slow Investments in Asset Markets: Influences on Risk Taking
- 2019
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In: Behavioral Finance Working Group Conference. London: 6-7 June 2019.
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Conference paper (other academic/artistic)abstract
- In an experiment business school students (n=123) role play being investment managers in a fund company incentivized by rank-based performance compensations. Investments are made at self-paced rates in stocks with normal return distributions varying in expected value and variance. Results show that investments increase above but decrease and are relatively more risky below a relative comparison standard. Above the comparison standard, hypothetical monetary bonuses do not increase risk taking more than non-monetary bonuses, while below the comparison standard hypothetical monetary penalties suppress risk taking more than non-monetary penalties do. Compared to a control condition with no relative comparison standard and hypothetical incentives, risk taking is lower below but not different above the comparison standard. The difference in results suggest that time pressure and complexity of strategic optimization are determinants of elevated risk taking in asset market experiments investigating effects of rank-based performance compensations.
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| 2. |
- Gärling, Tommy, 1941, et al.
(author)
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Fast and slow investments in asset markets: Influences on risk taking
- 2021
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In: Journal of Behavioral Finance. - : Informa UK Limited. - 1542-7560 .- 1542-7579. ; 22:1, s. 84-96
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Journal article (peer-reviewed)abstract
- © 2020, © 2020 The Author(s). Published with license by Taylor & Francis Group, LLC. The aim is to investigate whether elevated risk taking in asset market experiments driven by rank-based performance incentives decrease if removing a time limit on choices and minimizing complexity of strategic optimization. In a scenario experiment, business school students (n = 123) acting as investment managers in a fund company make investments at self-paced rates. The results show that investments are influenced by rank-based compensations implemented as a relative comparison standard but not that risk taking is elevated. The motive to minimize losses relative to others appear to counteract risk taking, particularly if poor performance is penalized by reducing the fixed income.
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| 3. |
- Gärling, Tommy, 1941, et al.
(author)
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Financial risk-taking related to individual risk preference, social comparison and competition
- 2021
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In: Review of Behavioral Finance. - 1940-5979. ; 13:2, s. 125-140
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Journal article (peer-reviewed)abstract
- Purpose – The purpose of this paper is to investigate how social comparison and motivation to compete account for elevated risk-taking in fund management corroborated by asset market experiments when performance depends on rank-based incentives. Design/methodology/approach – In two laboratory experiments, university students (n1 5 240/n2 5 120) make choices between risky and certain outcomes of hypothetical sums of money. Both experiments investigate in which direction risky choices in an individual condition (individual risk preference) are shifted when participants compare their performance to another participant’s performance (social comparison), being instructed or not to outperform the other (incentive to compete). Findings – In the absence of incentives to compete, participants tend to minimize the differences between expected outcomes to themselves and to the other, but when provided with incentives to compete, they tend to maximize these differences. An independent additional increase in risk-taking is observed when participants are provided with incentives to compete. Originality/value – Original findings include that social comparison does not evoke motivation to compete unless incentives are offered and that increases in risk-taking depend both on what the other chooses and the incentives.
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