Rankings are omnipresent in the finance industry, yet the literature is silent on how they impact financial professionals' behavior. Using lab-in-the-field experiments with 657 professionals and lab ...experiments with 432 students, we investigate how rank incentives affect investment decisions. We find that both rank and tournament incentives increase risk-taking among underperforming professionals, while only tournament incentives affect students. This rank effect is robust to the experimental frame (investment frame vs. abstract frame), to payoff consequences (own return vs. family return), to social identity priming (private identity vs. professional identity), and to professionals' gender (no gender differences among professionals).
We investigate how the experience of extreme events, such as the COVID-19 market crash, influence risk-taking behavior. To isolate changes in risk-taking from other factors, we ran controlled ...experiments with finance professionals in December 2019 and March 2020. We observe that their investments in the experiment were 12 percent lower in March 2020 than in December 2019, although their price expectations had not changed, and although they considered the experimental asset less risky during the crash than before. This lower perceived risk is likely due to adaptive normalization, as volatility during the shock is compared to volatility experienced in real markets (which was low in December 2019, but very high in March 2020). Lower investments during the crash can be supported by higher risk aversion, not by changes in beliefs.
The replicability of some scientific findings has recently been called into question. To contribute data about replicability in economics, we replicated 18 studies published in the American Economic ...Review and the Quarterly Journal of Economics between 2011 and 2014. All of these replications followed predefined analysis plans that were made publicly available beforehand, and they all have a statistical power of at least 90% to detect the original effect size at the 5% significance level. We found a significant effect in the same direction as in the original study for 11 replications (61%); on average, the replicated effect size is 66% of the original. The replicability rate varies between 67% and 78% for four additional replicability indicators, including a prediction market measure of peer beliefs.
Bubbles and Financial Professionals Weitzel, Utz; Huber, Christoph; Huber, Jürgen ...
The Review of financial studies,
06/2020, Letnik:
33, Številka:
6
Journal Article
Recenzirano
Odprti dostop
The efficiency of financial markets and their potential to produce bubbles are central topics in academic and professional debates. Yet, little is known about the contribution of financial ...professionals to price efficiency. We run 116 experimental markets with 412 professionals and 502 students. We find that professional markets with bubble drivers–capital inflows or high initial capital supply–are susceptible to bubbles, although they are more efficient than student markets. In mixed markets with students, bubbles also occur, but professionals act as price stabilizers. We show that heterogeneous price beliefs drive overpricing, especially in bubble-prone market environments.
We measure how accurately replication of experimental results can be predicted by black-box statistical models. With data from four large-scale replication projects in experimental psychology and ...economics, and techniques from machine learning, we train predictive models and study which variables drive predictable replication. The models predicts binary replication with a cross-validated accuracy rate of 70% (AUC of 0.77) and estimates of relative effect sizes with a Spearman ρ of 0.38. The accuracy level is similar to market-aggregated beliefs of peer scientists 1, 2. The predictive power is validated in a pre-registered out of sample test of the outcome of 3, where 71% (AUC of 0.73) of replications are predicted correctly and effect size correlations amount to ρ = 0.25. Basic features such as the sample and effect sizes in original papers, and whether reported effects are single-variable main effects or two-variable interactions, are predictive of successful replication. The models presented in this paper are simple tools to produce cheap, prognostic replicability metrics. These models could be useful in institutionalizing the process of evaluation of new findings and guiding resources to those direct replications that are likely to be most informative.
Celotno besedilo
Dostopno za:
DOBA, IZUM, KILJ, NUK, PILJ, PNG, SAZU, SIK, UILJ, UKNU, UL, UM, UPUK
Do individuals intuitively favor certain moral actions over others? This study explores the role of intuitive thinking-induced by time pressure and cognitive load-in moral judgment and behavior. We ...conduct experiments in three different countries (Sweden, Austria, and the United States) involving over 1,400 subjects. All subjects responded to four trolley type dilemmas and four dictator games involving different charitable causes. Decisions were made under time pressure/time delay or while experiencing cognitive load or control. Overall we find converging evidence that intuitive states do not influence moral decisions. Neither time-pressure nor cognitive load had any effect on moral judgments or altruistic behavior. Thus we find no supporting evidence for the claim that intuitive moral judgments and dictator game giving differ from more reflectively taken decisions. Across all samples and decision tasks men were more likely to make utilitarian moral judgments and act selfishly compared to women, providing further evidence that there are robust gender differences in moral decision-making. However, there were no significant interactions between gender and the treatment manipulations of intuitive versus reflective decision-making.
Celotno besedilo
Dostopno za:
DOBA, IZUM, KILJ, NUK, PILJ, PNG, SAZU, SIK, UILJ, UKNU, UL, UM, UPUK
In contrast to existing literature we implement experimental asset markets with fluctuating fundamental values following a stochastic process. Therefore we can measure traders’ behavior in both ...bullish and bearish markets. We observe underreaction of price changes to changes in fundamental value which induces overvaluation in bearish and undervaluation in bullish markets. We also find an asymmetry between markets with bullish fundamental values and those with bearish ones as the former markets show a higher degree of informational efficiency. The reason for the observed underreaction lies in the relatively large volatility of the underlying fundamental value process.
To explore why bubbles frequently emerge in the experimental asset market model of Smith, Suchanek, and Williams (1988), we vary the fundamental value process (constant or declining) and the ...cash—to—asset value ratio (constant or increasing). We observe high mispricing in treatments with a declining fundamental value, while overvaluation emerges when coupled with an increasing C/A ratio. A questionnaire reveals that the declining fundamental value process confuses subjects, as they expect the fundamental value to stay constant. Running the experiment with a different context ("stocks of a depletable gold mine" instead of "stocks") significantly reduces mispricing and overvaluation as it reduces confusion.
Being able to replicate scientific findings is crucial for scientific progress
. We replicate 21 systematically selected experimental studies in the social sciences published in Nature and Science ...between 2010 and 2015
. The replications follow analysis plans reviewed by the original authors and pre-registered prior to the replications. The replications are high powered, with sample sizes on average about five times higher than in the original studies. We find a significant effect in the same direction as the original study for 13 (62%) studies, and the effect size of the replications is on average about 50% of the original effect size. Replicability varies between 12 (57%) and 14 (67%) studies for complementary replicability indicators. Consistent with these results, the estimated true-positive rate is 67% in a Bayesian analysis. The relative effect size of true positives is estimated to be 71%, suggesting that both false positives and inflated effect sizes of true positives contribute to imperfect reproducibility. Furthermore, we find that peer beliefs of replicability are strongly related to replicability, suggesting that the research community could predict which results would replicate and that failures to replicate were not the result of chance alone.
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.
•We analyze how tournament incentives influence risk-taking and portfolio choice.•Our experiment further investigates whether behavior is driven by social competition.•The results suggest that subjects' behavior depends on past over- or underperformance.•Subjects' behavior is mainly driven by social status concerns for higher rank.•Monetary tournament incentives are of minor importance.
PDF
