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Rank matters–The impact of social competition on portfolio choice

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  • Dijk, Oege
  • Holmen, Martin
  • Kirchler, Michael

Abstract

Tournament incentives’ schemes have been criticized for inducing excessive risk-taking among financial market participants. In this paper we investigate how relative performance-based incentive schemes and status concerns for higher rank influence portfolio choice in laboratory experiments. We find that both underperformers and over-performers adapt their portfolios to their current relative performance, preferring either positively or negatively skewed assets, respectively. Most importantly, these results hold both when relative performance is instrumental for higher payoffs in a tournament and when it is only intrinsically motivating and not payout-relevant. We find no effects when no relative performance information is given.

Suggested Citation

  • Dijk, Oege & Holmen, Martin & Kirchler, Michael, 2014. "Rank matters–The impact of social competition on portfolio choice," European Economic Review, Elsevier, vol. 66(C), pages 97-110.
    • Handle: RePEc:eee:eecrev:v:66:y:2014:i:c:p:97-110
    DOI: 10.1016/j.euroecorev.2013.11.010
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    More about this item

    Keywords

    Portfolio choice; Tournaments; Social competition; Experimental finance;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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