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Taking Over Control:An Experimental Analysis of Delegation Avoidance in Risky Choices

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  • Matteo Ploner
  • Viola Saredi

Abstract

We experimentally investigate delegation in risky choices, in a principal-agent framework. Agents are asked to build a portfolio for their principals by selecting among prospects that are presented either in a conventional descriptive way or are experienced via exploration (i.e., clicking paradigm). Principals are given the opportunity to take over control and build their own portfolio by paying a fee. We find that portfolios built by principals are more efficient in terms of mean-variance ratio and more ambitious in terms of expected returns than those built by the delegated agents. The higher quality of principal�s portfolios is associated to higher effort exerted in the experience framework by principals than by agents. Principals anticipate differences in portfolio�s performance, but pay a control fee that is generally excessive and negatively impacts on final earnings.

Suggested Citation

  • Matteo Ploner & Viola Saredi, 2016. "Taking Over Control:An Experimental Analysis of Delegation Avoidance in Risky Choices," CEEL Working Papers 1606, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpce:1606
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    More about this item

    Keywords

    Description-Experience Gap; delegated decision-making; control premium; risk taking; 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
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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