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Being watched in an investment game setting: Behavioral changes when making risky decisions

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  • Jia, Z. Tingting
  • McMahon, Matthew J.

Abstract

We design a laboratory experiment to test for behavioral differences due to observation within a novel arena: investment games. We find that fund managers are more risk-averse when investors can observe their investment allocations. This effect is more pronounced when investors, in addition to observing the allocations, can also observe the investment outcomes. Interestingly, allowing investors to observe how their investment is allocated does not impact how much they invest. Last, when the outcome of the risky investment is public knowledge, disclosing managers’ allocations leads them to return more tokens to investors and to expropriate fewer tokens for themselves at the end of the game, ceteris paribus. We discuss potential causes of these effects.

Suggested Citation

  • Jia, Z. Tingting & McMahon, Matthew J., 2020. "Being watched in an investment game setting: Behavioral changes when making risky decisions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 88(C).
  • Handle: RePEc:eee:soceco:v:88:y:2020:i:c:s2214804319303714
    DOI: 10.1016/j.socec.2020.101593
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    More about this item

    Keywords

    Investment game; Risk; Reciprocity; Trustworthiness; Experiment;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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