Rank matters–The impact of social competition on portfolio choice
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SourceEuropean Economic Review, 66, (2014), pp. 97-110
Article / Letter to editor
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Financiële economie en ondernemingsfinanciering
European Economic Review
SubjectDistributional Conflicts in a Globalizing World: Consequences for State-Market-Civil Society Arrangements
Tournament incentives’ schemes have been criticized for inducing excessive risk-taking among financial market participants. In this paper we investigate how relative performance-based incentive schemes and status concerns for higher rank influence portfolio choice in laboratory experiments. We find that both underperformers and over-performers adapt their portfolios to their current relative performance, preferring either positively or negatively skewed assets, respectively. Most importantly, these results hold both when relative performance is instrumental for higher payoffs in a tournament and when it is only intrinsically motivating and not payout-relevant. We find no effects when no relative performance information is given.
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