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Social Motives and Risk-Taking in Investment Decisions

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  • Lindner, Florian
  • Kirchler, Michael
  • Rosenkranz, Stephanie
  • Weitzel, Utz

Abstract

A pervasive feature in the finance industry is relative performance, which can include extrinsic (money), intrinsic (self-image), and reputational (status) motives. In this paper, we model a portfolio decision with two assets and investigate how reputational motives (i.e., the public announcement of the winners or losers) influence risk-taking in investment decisions vis-a-vis intrinsic motives. We test our hypotheses experimentally with 864 students and 330 financial professionals. We find that reputational motives play a minor role among financial professionals, as the risk-taking of underperformers is already increased due to intrinsic motives. Student behavior, however, is mainly driven by reputational motives with risk-taking levels that come close to those of professionals when winners or losers are announced publicly. This indicates that professionals show higher levels of intrinsic (self-image) incentives to outperform others compared to non-professionals (students), but a similar behavior can be sparked among the latter by adding reputational incentives.

Suggested Citation

  • Lindner, Florian & Kirchler, Michael & Rosenkranz, Stephanie & Weitzel, Utz, 2021. "Social Motives and Risk-Taking in Investment Decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:dyncon:v:127:y:2021:i:c:s0165188921000518
    DOI: 10.1016/j.jedc.2021.104116
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    More about this item

    Keywords

    Experimental finance; Behavioral economics; Investment game; Rank incentives; Social status; Reputational motives;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G2 - Financial Economics - - Financial Institutions and Services
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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