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Skewness-seeking behavior and financial investments

Author

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  • Matteo Benuzzi
  • Matteo Ploner

Abstract

Recent theoretical and empirical contributions have demonstrated the sig- nificance of higher-order moments, such as skewness, in influencing financial decisions. Most current experimental literature relies on lotteries with a lim- ited number of potential outcomes, which do not accurately represent real-life investments. To address this gap, we conducted a pre-registered experiment that examines preferences toward investment opportunities with varying skew- ness using continuous distributions. Our findings reveal several key insights. Firstly, there is an overall preference for positively skewed distributions of outcomes. Secondly, we observed a substitution effect between risk-taking, as measured by variance, and the direction of skewness. Lastly, we established a positive correlation between skewness-seeking behavior and speculative be- havior and a negative correlation between skewness-seeking behavior and risk perception of positive skewness.

Suggested Citation

  • Matteo Benuzzi & Matteo Ploner, 2023. "Skewness-seeking behavior and financial investments," CEEL Working Papers 2301, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpce:2301
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    References listed on IDEAS

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    More about this item

    Keywords

    Skewness; Risk-taking; Stochastic Dominance; Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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