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Keep Up With the Winners: Experimental Evidence on Risk Taking, Asset Integration, and Peer Effects

Lookup NU author(s): Professor Daniel ZizzoORCiD

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).

Abstract

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. Controllingfor past winnings, participants receiving a low endowment in a round engage in more risktaking. We test a ‘keeping-up-with-the-Joneses’ hypothesis and find that subjects seek tokeep up with winners, though not necessarily with average earnings. Overall, the evidencesuggests that risk taking tracks a reference point affected by social comparisons.

Publication metadata

Author(s): Fafchamps M, Kebede B, Zizzo DJ

Publication type: Article

Publication status: Published

Journal: European Economic Review

Year: 2015

Volume: 79

Pages: 59-79

Print publication date: 01/10/2015

Online publication date: 26/07/2015

Acceptance date: 02/07/2015

Date deposited: 17/07/2015

ISSN (print): 0014-2921

ISSN (electronic): 1873-572X

Publisher: Elsevier BV

URL: http://dx.doi.org/10.1016/j.euroecorev.2015.07.001

DOI: 10.1016/j.euroecorev.2015.07.001

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