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Keep up with the winners: Experimental evidence on risk taking, asset integration, and peer effects

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  • Fafchamps, Marcel
  • Kebede, Bereket
  • Zizzo, Daniel John

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

Suggested Citation

  • Fafchamps, Marcel & Kebede, Bereket & Zizzo, Daniel John, 2015. "Keep up with the winners: Experimental evidence on risk taking, asset integration, and peer effects," European Economic Review, Elsevier, vol. 79(C), pages 59-79.
    • Handle: RePEc:eee:eecrev:v:79:y:2015:i:c:p:59-79
    DOI: 10.1016/j.euroecorev.2015.07.001
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    More about this item

    Keywords

    Risk; Asset integration; Social comparisons; Prospect theory;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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