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Do investors optimize, follow heuristics, or listen to experts?

Author

Listed:
  • Thomas Gehrig

    (Institut zur Erforschung der wirtschaftlichen Entwicklung, Albert-Ludwigs-Universität Freiburg i. Br.)

  • Werner Güth

    (Max Planck Institute of Economics, Jena)

  • Rene Levinsky

    (Max Planck Institute of Economics, Jena)

  • Vera Popova

    (Max Planck Institute of Economics, Jena)

Abstract

In the experimental scenario several agents repeatedly invest in n (n >= 2) state-speciïfic assets. The evolutionarily stable and equilibrium (Blume and Easley, 1992) portfolio for this situation requires to distribute funds according to the constant probabilities of the various states. The different treatments endow none, one, three, or all subjects in groups of eight investors each with probability information. Will investments follow the theoretical benchmark or the 1/n-heuristic of equal investments in all assets? Further, will agents with probability information be asked and paid for advice on how to invest? Although investment does not converge as predicted, portfolios of informed agents reflect the probabilities of states, and even uninformed agents do not invest according to the 1/n-heuristic. Advice is demanded and readily paid for. Surprisingly, clients do not always follow the recommendation. Competition among advisors reduces their fees as expected.

Suggested Citation

  • Thomas Gehrig & Werner Güth & Rene Levinsky & Vera Popova, 2008. "Do investors optimize, follow heuristics, or listen to experts?," Jena Economics Research Papers 2008-086, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2008-086
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2008/wp_2008_086.pdf
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    Cited by:

    1. Gehrig, Thomas & Güth, Werner & Leví0nský, René & Popova, Vera, 2010. "On the evolution of professional consulting," Journal of Economic Behavior & Organization, Elsevier, vol. 76(1), pages 113-126, October.
    2. Werner Güth, 2009. "Optimal gelaufen, einfach zufrieden oder unüberlegt gehandelt? Zur Theorie (un)eingeschränkt rationalen Entscheidens," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(s1), pages 75-100, May.

    More about this item

    Keywords

    portfolio selection; evolution of expertise; advice; heuristics; evolutionary finance; experiments;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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