Do investors optimize, follow heuristics, or listen to experts?
AbstractIn 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.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2008-086.
Date of creation: 12 Nov 2008
Date of revision:
portfolio selection; evolution of expertise; advice; heuristics; evolutionary finance; experiments;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-25 (All new papers)
- NEP-CBE-2008-11-25 (Cognitive & Behavioural Economics)
- NEP-EXP-2008-11-25 (Experimental Economics)
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- 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, 05.
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