Working Paper: CEPR ID: DP9714
Authors: Marcel Fafchamps; Bereket Kebede; Daniel John Zizzo
Abstract: The paper reports the result of an experimental game on asset integration and risk taking. We find 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. We find some evidence of imitation of the risk taking behavior of others that is distinct from learning. Controlling for past winnings, participants who receive a low endowment in a round engage in more risk taking. We also test a `keeping-up-with-the-Joneses' hypothesis and find some evidence that subjects seek to keep up with winners. Taken together, the evidence is consistent with risk taking tracking a reference point that is affected by social comparisons.
Keywords: asset integration; prospect theory; risk; social comparisons
JEL Codes: C91; D12; D81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| past winnings (D44) | risk-taking (D81) |
| peer behavior (C92) | risk-taking (D81) |
| lower endowments (D29) | risk-taking (D81) |
| real-life wealth (D14) | risk-taking (D81) |