Social Motives and Risk-Taking in Investment Decisions

• DOI: 10.1016/j.jedc.2021.104116
• Publication Date: 2021-04-21T18:41:40Z
• Authors: Florian Lindner; Michael Kirchler; Stephanie Rosenkranz; Utz Weitzel
• Keywords: SDG 16 - Peace; 05 social sciences; Rank incentives; Justice and Strong Institutions; Investment game; Social status; Behavioral economics; 0502 economics and business; 8. Economic growth; Reputational motives; Institute for Management Research; Experimental finance

A pervasive feature in the finance industry is relative performance, which can include extrinsic (money), intrinsic (self-image), and reputational (status) motives. In this paper, we model a portfolio decision with two assets and investigate how reputational motives (i.e., the public announcement of the winners or losers) influence risk-taking in investment decisions vis-a-vis intrinsic motives. We test our hypotheses experimentally with 864 students and 330 financial professionals. We find that reputational motives play a minor role among financial professionals, as the risk-taking of underperformers is already increased due to intrinsic motives. Student behavior, however, is mainly driven by reputational motives with risk-taking levels that come close to those of professionals when winners or losers are announced publicly. This indicates that professionals show higher levels of intrinsic (self-image) incentives to outperform others compared to non-professionals (students), but a similar behavior can be sparked among the latter by adding reputational incentives.