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Peer effects and risk sharing in experimental asset markets

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  • Baghestanian, Sascha
  • Gortner, Paul J.
  • van der Weele, Joël J.

Abstract

Previous research has documented strong peer effects in risk taking, but little is known about how such social influences affect market outcomes. Since the consequences of social interactions are hard to isolate in financial data, we design an experimental asset market with multiple risky assets and study how exogenous variation in real-time information about the portfolios of peer group members affects aggregate and individual risk taking. We find that peer information reduces under-diversification through changes in risk attitudes that last beyond the market environment. The effect of information depends on its framing: highlighting the highest earning trader increases willingness to take risk and average exposure in the market. Our results show that peer information is an important determinant of earnings volatility in financial markets, and we discuss implications for institutional design.

Suggested Citation

  • Baghestanian, Sascha & Gortner, Paul J. & van der Weele, Joël J., 2015. "Peer effects and risk sharing in experimental asset markets," SAFE Working Paper Series 67, Leibniz Institute for Financial Research SAFE, revised 2015.
    • Handle: RePEc:zbw:safewp:67
    DOI: 10.2139/ssrn.2504541
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    Cited by:

    1. Gortner, Paul J. & van der Weele, Joël J., 2019. "Peer effects and risk sharing in experimental asset markets," European Economic Review, Elsevier, vol. 116(C), pages 129-147.
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    3. Bossaerts, Peter & Suzuki, Shinsuke & O’Doherty, John P., 2019. "Perception of intentionality in investor attitudes towards financial risks," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 189-197.
    4. Owen Powell & Natalia Shestakova, 2017. "Experimental asset markets: behavior and bubbles," Chapters, in: Morris Altman (ed.), Handbook of Behavioural Economics and Smart Decision-Making, chapter 21, pages 375-391, Edward Elgar Publishing.

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    More about this item

    Keywords

    peer effects; laboratory experiments; risk taking; asset markets;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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