IDEAS home Printed from
   My bibliography  Save this article

An Experimental Examination of Portfolio Choice


  • Lucy F. Ackert
  • Bryan K. Church
  • Li Qi


Investors do not hold optimal portfolios. We use an experimental method to isolate factors that compel individuals to hold optimal portfolios. Our design includes two risky assets with perfectly negatively correlated payoffs so that all risk can be eliminated. We find that participants’ holdings approach optimal portfolios only under very specific conditions: the variance cost of holding an imbalanced portfolio is substantial and feedback on period-by-period outcomes is suppressed (eliminating the impact of cognitive biases resulting from misperceptions of randomness).

Suggested Citation

  • Lucy F. Ackert & Bryan K. Church & Li Qi, 2016. "An Experimental Examination of Portfolio Choice," Review of Finance, European Finance Association, vol. 20(4), pages 1427-1447.
  • Handle: RePEc:oup:revfin:v:20:y:2016:i:4:p:1427-1447.

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Richard H. Thaler & Shlomo Benartzi, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March.
    2. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Gortner, Paul J. & van der Weele, Joël J., 2019. "Peer effects and risk sharing in experimental asset markets," European Economic Review, Elsevier, vol. 116(C), pages 129-147.
    2. Paul Gortner & Joël van der Weele, "undated". "Peer Effects and Risk Sharing in Experimental Asset Markets," Tinbergen Institute Discussion Papers 19-027/I, Tinbergen Institute.
    3. Huber, Jürgen & Palan, Stefan & Zeisberger, Stefan, 2019. "Does investor risk perception drive asset prices in markets? Experimental evidence," Journal of Banking & Finance, Elsevier, vol. 108(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van Rooij, Maarten C.J. & Kool, Clemens J.M. & Prast, Henriette M., 2007. "Risk-return preferences in the pension domain: Are people able to choose?," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 701-722, April.
    2. Eduard Marinov, 2017. "The 2017 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 117-159.
    3. Committee, Nobel Prize, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    4. Andrea Lippi, 2014. "Does menu design influence retirement investment choices? Evidence from Italian occupational pension funds," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 9(1), pages 77-82, January.
    5. Gomes, Francisco J & Haliassos, Michael & Ramadorai, Tarun, 2020. "Household Finance," CEPR Discussion Papers 14502, C.E.P.R. Discussion Papers.
    6. Davies, G.B. & Satchell, S.E., 2004. "Continuous Cumulative Prospect Theory and Individual Asset Allocation," Cambridge Working Papers in Economics 0467, Faculty of Economics, University of Cambridge.
    7. Neil Stewart & Stian Reimers & Adam J. L. Harris, 2015. "On the Origin of Utility, Weighting, and Discounting Functions: How They Get Their Shapes and How to Change Their Shapes," Management Science, INFORMS, vol. 61(3), pages 687-705, March.
    8. Philippe Fevrier & Sebastien Gay, 2005. "Informed Consent Versus Presumed Consent The Role of the Family in Organ Donations," HEW 0509007, University Library of Munich, Germany.
    9. Anne Lavigne, 2006. "Gouvernance et investissement des fonds de pension privés aux Etats-Unis," Working Papers halshs-00081401, HAL.
    10. Lisa A. Robinson & James K. Hammitt, 2011. "Behavioral Economics and Regulatory Analysis," Risk Analysis, John Wiley & Sons, vol. 31(9), pages 1408-1422, September.
    11. Wiebke Roß & Jens Weghake, 2018. "Wa(h)re Liebe: Was Online-Dating-Plattformen über zweiseitige Märkte lehren," TUC Working Papers in Economics 0017, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
    12. Jose Apesteguia & Miguel Ballester, 2009. "A theory of reference-dependent behavior," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(3), pages 427-455, September.
    13. Martin P. Fritze & Andreas B. Eisingerich & Martin Benkenstein, 2019. "Digital transformation and possession attachment: examining the endowment effect for consumers’ relationships with hedonic and utilitarian digital service technologies," Electronic Commerce Research, Springer, vol. 19(2), pages 311-337, June.
    14. Cho, Insoo & Orazem, Peter F., 2020. "How endogenous risk preferences and sample selection affect analysis of firm survival," ISU General Staff Papers 202001040800001791, Iowa State University, Department of Economics.
    15. A. Banerji & Jeevant Rampal, 2020. "Reverse Endowment Effect for a New Product," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 786-805, May.
    16. Tian, Ye & Chiu, Yi-Chang & Sun, Jian, 2019. "Understanding behavioral effects of tradable mobility credit scheme: An experimental economics approach," Transport Policy, Elsevier, vol. 81(C), pages 1-11.
    17. Xingrong Hou & Jianmin Zeng & Hong Chen & Li Su, 2019. "The endowment effect in the genes: An exploratory study," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(3), pages 293-298, May.
    18. Sibly, Hugh, 2002. "Loss averse customers and price inflexibility," Journal of Economic Psychology, Elsevier, vol. 23(4), pages 521-538, August.
    19. Oliver Falck & Christina Guenther & Stephan Heblich & William R. Kerr, 2013. "From Russia with love: the impact of relocated firms on incumbent survival," Journal of Economic Geography, Oxford University Press, vol. 13(3), pages 419-449, May.
    20. Mußhoff, O. & Hirschauer, N., 2013. "Planspiele als experimentelle Methode der Politikfolgenabschätzung: Das Beispiel der Stickstoffextensivierung," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 48, March.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:revfin:v:20:y:2016:i:4:p:1427-1447.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) The email address of this maintainer does not seem to be valid anymore. Please ask Oxford University Press to update the entry or send us the correct email address or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.