Keep Up with the Winners: Experimental Evidence on Risk Taking, Asset Integration, and Peer Effects
21 Pages Posted: 15 Nov 2015
Date Written: November 12, 2015
The paper reports the result of an experimental game on asset integration and risk taking. We find some evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. Controlling for past winnings, participants receiving a low endowment in a round engage in more risk taking. We test a ‘keeping-up-with-the-Joneses’ hypothesis and find that subjects seek to keep up with winners, though not necessarily with average earnings. Overall, the evidence suggests that risk taking tracks a reference point affected by social comparisons.
Keywords: Risk, Asset integration, Social comparisons, Prospect theory
JEL Classification: C91, D12, D81
Suggested Citation: Suggested Citation