Fast and Slow Investments in Asset Markets: Influences on Risk Taking

Abstract

The aim is to investigate whether elevated risk taking in asset market experiments driven by rank-based performance incentives decrease if removing a time limit on choices and minimizing complexity of strategic optimization. In a scenario experiment, business school students (n ¼ 123) acting as investment managers in a fund company make investments at self-paced rates. The results show that investments are influenced by rank-based compensations implemented as a relative comparison standard but not that risk taking is elevated. The motive to minimize losses relative to others appear to counteract risk taking, particularly if poor performance is penalized by reducing the fixed income.

The influence of upward social comparison on retail trading behaviour

“…To address the need to study human interaction with increasingly popular trading platforms, we investigated the influence of upward social comparison on risk-taking, trading activity and trading performance satisfaction with a dynamic trading task. Our results confirmed previous findings indicating that upward social comparison results in more risky trading behaviour 12 , 13 , 36 , 38 , 41 . Our findings add to previous research by experimentally demonstrating that upward social comparison also increases trading activity such as total traded volume.…”

“…Individuals also adjust their risk-taking levels to that of a better player in two-player investment games where one outperforms the other 37 . Such adjustments also occur beyond tournaments: investors adjust the risk of their portfolios when they receive bonuses dependent on a market index that indicates the performance of all market players 13 . A possible explanation of these findings is that relative performance implicitly creates a tournament reward structure 38 .…”

The Influence of Upward Social Comparison on Retail Trading Behavior

“…To address the need to study human interaction with increasingly popular trading platforms, we investigated the influence of upward social comparison on risk-taking and trading activity, using a dynamic trading task. Our results confirmed previous findings indicating that upward social comparison results in more risky trading behavior (see Apesteguia, Oechssler & Weidenholzer, 2020;Dijk, Holmen & Kirchler, 2013;Gärling et al, 2020;Schoenberg & Haruvy, 2012). Our findings add to previous research by experimentally demonstrating that upward social comparison also increases trading activity such as total traded volume.…”

“…Adjusting one's risk taking level to the better player also occurs in two-player investment games where one outperforms the other (Nieken & Sliwka, 2010). Gärling, Fang, Holmen and Michaelsen (2020) induced social comparison by setting a bonus/penalty when a participant obtained a return on their investment above/below a threshold of 3% of the market index, where the market index corresponded to the average market (i.e., all market players) performance. Study participants increased investment when they were falling below the bonus threshold and decreased investment when their portfolio fell below the penalty threshold.…”