ABSTRACT Rankings are omnipresent in the finance industry, yet literature is silent on how they impact financial professionals' behavior. Using lab‐in‐the‐field experiments with 657 professionals and lab 432 students, we investigate rank incentives affect investment decisions. We find that both tournament increase risk‐taking among underperforming professionals, while only students. This effect robust to experimental frame (investment vs. abstract frame), payoff consequences (own return...

Risk is an integral part of many economic decisions and vitally important in finance. Despite extensive research on decision making under risk, little known about how risks are actually perceived by financial professionals, the key players global markets. In a large-scale survey experiment with 2,213 finance professionals 4,559 laypeople nine countries representing ~50% world’s population more than 60% gross domestic product, we expose participants to return distributions equal expected...

Abstract The efficiency of financial markets and their potential to produce bubbles are central topics in academic professional debates. Yet, little is known about the contribution professionals price efficiency. We run 116 experimental with 412 502 students. find that bubble drivers – capital inflows or high initial supply susceptible bubbles, although they more efficient than student markets. In mixed students, also occur, but act as stabilizers. show heterogeneous beliefs drive...

Summary Many tournaments are plagued by sabotage among competitors. Typically, is welfare‐reducing, but from an individual's perspective attractive alternative to exerting positive effort. Yet, given its illegal and often immoral nature, typically hidden, making it difficult assess extent victims. Therefore, we use data J udo W orld C hampionships, where a rule change in 2009 basically constituted natural experiment that introduced one costless opportunity for sabotage. In udo, competitors...

In laboratory experiments we explore the effects of communication and group decision making on investment behavior subjects' proneness to behavioral biases. Most importantly, show that do not impact overall hot hand fallacy gambler's fallacy. However, groups decide differently than individuals, as they rely significantly less useless outside advice from "experts" choose risk-free option frequently. Furthermore document gender differences in behavior: two female subjects more often are...

We utilize a laboratory experiment to compare effort provision under optimal tournament contracts with different distributions of prizes which motivate agents compete be first, avoid being last, or both. find that the combined contract incorporating both incentives at top and bottom induces highest effort, especially in larger groups. Avoiding last produces lowest variance is more effective motivating employees compared competing for top.

Arad and Rubinstein (2012a) have designed a novel game to study level-k reasoning experimentally. Just like them, we find that the depth of is very limited clearly different from in equilibrium play. We show such behavior even robust repetitions; hence there is, at best, little learning. However, under time pressure, perhaps coincidentally, closer argue pressure evokes intuitive reduces focal attraction choosing higher (and per se more profitable) numbers game.

We investigate determinants of price expectations and satisfaction levels financial professionals students. In experiments with 150 576 students, we systematically vary paths according to the final return (positive or negative) way in which is achieved (upswing followed by downswing vice versa). Professionals show most optimistic are satisfied if assets fall first then recover. addition, professionals' highest after positive returns. Among qualitatively similar patterns emerge, but less...

Two aspects of social context are central to the finance industry. First, financial professionals usually make investment decisions on behalf third parties. Second, competition, in form performance rankings, is pervasive. Therefore, we investigate professionals' risk taking behavior under competition when investing for others. We run online and lab-in-the-field experiments with 805 show that increase their others they lag behind. Additional survey evidence from 1349 respondents reveals...

Does market interaction influence morality? We study a particular angle of this classic question theoretically and experimentally. The novelty our approach is to posit that people are motivated by reciprocity – an urge many argue affects humans. While have suggested interactions make more selfish, reciprocity-based theory allows on the contrary induces prosociality. Our experiment provides test empirical relevance such effect, in some highly stylized settings. results broadly (but not...

Risk is an integral part of many economic decisions, and vitally important in finance. Despite extensive research on decision-making under risk, little known about how risks are actually perceived by financial professionals, the key players global markets. In a large-scale survey experiment with 2,213 finance professionals 4,559 lay people nine countries representing ~50% world's population more than 60% gross domestic product, we expose participants to return distributions equal expected...

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 investigate how motives (i.e., public announcement of winners or losers) influence risk-taking investment decisions vis-a-vis We test our hypotheses experimentally 864 students 330 financial professionals. find that play minor role among professionals, as...

Tournaments are widely used in organizations, explicitly or implicitly, to reward the best‐performing employees, for example, by promotion bonuses, and/or penalize worst‐performing demotion, withholding unfavorable job assignments. These incentive schemes can be interpreted as various prize allocations based on employees' relative performance. While optimal allocation tournaments of symmetric agents is relatively well understood, little known about impact prizes effectiveness tournament...

Two aspects of social context are central to the finance industry. First, financial professionals usually make investment decisions on behalf third parties. Second, competition, in form performance rankings, is pervasive. Therefore, we investigate professionals’ risk-taking behavior under competition when investing for others. We run online and lab-in-the-field experiments with 805 show that increase their risk taking others they lag behind. Additional survey evidence from 1,349 respondents...

Rankings are omnipresent in the finance industry, yet literature is silent on how they impact financial professionals' behavior. Using lab-in-the-field experiments with 657 professionals and lab 432 students, we investigate rank incentives affect investment decisions. We find that both tournament increase risk-taking among underperforming professionals, while only students. This effect robust to experimental frame (investment versus abstract frame), payoff consequences (own return family...

Risk is an integral part of many economic decisions, and vitally important in finance. Despite extensiveresearch on decision-making under risk, little known about how risks are actually perceived by financialprofessionals, the key players global financial markets. In a large-scale survey experiment with 2,213 financeprofessionals 4,559 lay people nine countries representing approx. 50% world’s population morethan 60% gross domestic product, we expose participants to return distributions...

The efficiency of financial markets, but also their potential to produce bubbles are central topics in academic and professional debates. Yet, little is known about the contribution professionals price efficiency. We run 116 experimental markets with 412 502 students. find that bubble-drivers - capital inflows or high initial supply susceptible bubbles, although they more efficient than student markets. In mixed students, occur, act as stabilizers. show heterogeneous beliefs drive...

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 investigate how motives (i.e., public announcement of winners or losers) influence risk-taking investment decisions vis-a-vis We test our hypotheses experimentally 864 students 330 financial professionals. find that play minor role among professionals, as...