DP9714 Keep Up With the Winners: Experimental Evidence on Risk Taking, Asset Integration, and Peer Effects

Author(s): Marcel Fafchamps, Bereket Kebede, Daniel John Zizzo
Publication Date: November 2013
Keyword(s): asset integration, prospect theory, risk, social comparisons
JEL(s): C91, D12, D81
Programme Areas: Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9714

The paper reports the result of an experimental game on asset integration and risk taking. We find 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. We find some evidence of imitation of the risk taking behavior of others that is distinct from learning. Controlling for past winnings, participants who receive a low endowment in a round engage in more risk taking. We also test a `keeping-up-with-the-Joneses' hypothesis and find some evidence that subjects seek to keep up with winners. Taken together, the evidence is consistent with risk taking tracking a reference point that is affected by social comparisons.