DP11056 Skewness Seeking in a Dynamic Portfolio Choice Experiment

Author(s): Isabelle Brocas, Juan D Carrillo, Aleksandar Giga, Fernando Zapatero
Publication Date: January 2016
Keyword(s): laboratory experiment, portfolio allocation, relative performance, skewed asset
JEL(s): C91, D03, D81, G11
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11056

We conduct a controlled laboratory experiment in which subjects dynamically choose to allocate their portfolio between (i) a safe asset, (ii) a risky asset and (iii) a skewed asset with negative expected value (a ?bet?), in an environment where they can sometimes choose to acquire some information about the performance of their peers. We find three distinct groups of individuals: 16% of subjects never buy the bet, 29% of subjects learn not to buy the bet and 55% subjects persist purchasing the bet throughout the experiment. Among the latter group, purchases are most frequent when subjects are rich and when it is their last opportunity. Our subjects are also interested in the wealth of others, especially relative to theirs. Indeed, a subject with low, medium and high wealth has a preference for finding out what is the minimum, average and maximum wealth in the session, respectively. We also find that subjects buy more bets when they are richer and (unexpectedly) learn that their peers outperform them.