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Delegated Decision Making and Social Competition in the Finance Industry

Author

Listed:
  • Michael Kirchler

    (University of Innsbruck, Department of Banking and Finance)

  • Florian Lindner

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Utz Weitzel

    (Utrecht University School of Economics)

Abstract

Two aspects of social context are central to the finance industry. First, financial professionals usually make investment decisions on behalf of third parties. Second, social competition, in the form of performance rankings, is pervasive. Therefore, we investigate professionals’ risk-taking behavior under social competition when investing for others. We run online and lab-in-the-field experiments with 965 financial professionals and show that professionals increase their risk taking for others when they lag behind. This effect, however, disappears when professionals’ incentives are flat. Additional survey evidence from 1,349 respondents reveals that professionals’ preferences for high rankings are significantly stronger than the general population’s.

Suggested Citation

  • Michael Kirchler & Florian Lindner & Utz Weitzel, 2018. "Delegated Decision Making and Social Competition in the Finance Industry," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2018_08, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2018_08
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    Cited by:

    1. Huber, Christoph & Huber, Jürgen & Hueber, Laura, 2019. "The effect of experts’ and laypeople’s forecasts on others’ stock market forecasts," Journal of Banking & Finance, Elsevier, vol. 109(C).
    2. Polman, Evan & Wu, Kaiyang, 2020. "Decision making for others involving risk: A review and meta-analysis," Journal of Economic Psychology, Elsevier, vol. 77(C).
    3. Montinari, Natalia & Rancan, Michela, 2020. "A friend is a treasure: On the interplay of social distance and monetary incentives when risk is taken on behalf of others," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 86(C).
    4. Brice Corgnet & Camille Cornand & Nobuyuki Hanaki, 2021. "Emotional Markets: Competitive Arousal, Overbidding and Bubbles," Working Papers 2117, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    5. Rose, Julia & Kirchler, Michael & Palan, Stefan, 2023. "Status and reputation nudging," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 105(C).
    6. Brice Corgnet & Camille Cornand & Nobuyuki Hanaki, 2021. "Risk-Taking and Tail Events Across Trading Institutions," Working Papers halshs-03357898, HAL.
    7. Schwaiger, Rene & Kirchler, Michael & Lindner, Florian & Weitzel, Utz, 2020. "Determinants of investor expectations and satisfaction. A study with financial professionals," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    8. Farago, Adam & Holmén, Martin & Holzmeister, Felix & Kirchler, Michael & Razen, Michael, 2019. "Cognitive Skills and Economic Preferences in the Fund Industry," OSF Preprints 964ba, Center for Open Science.
    9. Brice Corgnet & Camille Cornand & Nobuyuki Hanaki, 2021. "Risk-Taking and Tail Events Across Trading Institutions," Working Papers hal-03468913, HAL.

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    More about this item

    Keywords

    Experimental finance; behavioral finance; social competition; rank incentives; financial professionals; delegated decision making; investment game; lab-in-the-field experiment.;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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