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Keep Up With the Winners: Experimental Evidence on Risk Taking, Asset Integration, and Peer Effects

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  • Marcel Fafchamps

    (University of Oxford)

  • Bereket Kebede

    (University of East Anglia)

  • Daniel John Zizzo

    (University of East Anglia)

Abstract

The paper reports the result of an experimental game on asset integration and risk taking. We find evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. We and some evidence of imitation of the risk taking behavior of others that is distinct from learning. Controlling for past winnings, participants who receive a low endowment in a round engage in more risk taking. We also test a keeping-up-with-the-Joneses hypothesis and find some evidence that subjects seek to keep up with winners. Taken together, the evidence is consistent with risk taking tracking a reference point that is affected by social comparisons.

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Bibliographic Info

Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) with number 14-03.

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Date of creation: 2014
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Handle: RePEc:uea:wcbess:14-03

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Keywords: risk; asset integration; social comparisons; prospect theory;

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