Fair advice

Millions of investors place their trust in financial advisors who may have incentives to give them bad advice. This may indicate that advisors behave more fairly than economic theory predicts. In this paper, we present results from a large-scale experiment studying advice-giving under conflicting interests. We use a binary dictator game as a baseline and transform it into a situation where the dictator gives advice that may or may not be followed. Our results show that people are averse to giving bad advice. When subjects are given the role of advisor, they behave less selfishly, even when the economic incentives and considerations remain the same as in the baseline dictator game.publishedVersio

Bank run psychology

Banks are inherently susceptible to panics and bank runs due to the problem of maturity mismatch, resulting in both a stable equilibrium in which the bank survives and an unstable equilibrium in which a bank run occurs. Understanding equilibrium selection in this setting is extremely important for safeguarding financial stability. In this paper one new potential factor that determines whether a bank runs gets triggered or not is experimentally studied, namely the psychological state of the depositor. Prior to participating in an experimental bank run game, subjects are either induced with fear, sadness or happiness using an autobiographical emotion induction task. The findings suggest that the presence of background fear significantly increases the likelihood of withdrawal and a subsequent bank run. In addition women are shown to be significantly more likely to withdraw then men, but only in the fear induction treatment. (C) 2017 Elsevier B.V. All rights reserved

Keeping up with the Medici! Three essays on social comparison, consumption and risk

Defence date: 4 April 2012; Examining Board: Professor Pascal Courty, University of Victoria (External Supervisor); Professor Andrea Mattozzi, European University Institute; Professor Ed Hopkins, University of Edinburgh; Professor Matteo Ploner, University of TrentoThis thesis investigates the influence of social comparison (i.e. comparing ones outcomes with others such as neighbours, colleagues, etc) on consumption and risk-taking. The first essay (joint with Robert H. Frank and Adam S. Levine) shows how income growth of the top ranks of the income distribution can decrease overall saving rates through a so-called expenditure cascade. As the higher incomes increase their consumption, those ranked below them also increase their consumption in order not to fall behind too much, which causes those ranked below them to increase consumption as well, etc. These consumption cascades can thus lower saving rates throughout the income distribution. We provide empirical evidence for this phenomenon by showing that several proxies related to financial distress (bankruptcy rates, divorce rates, commute times) are positively associated with increases in inequality. The second essay argues shows that social comparison can induce risk-taking. It shows that with comparison convex preferences social comparison would induce both more risk taking and a preference for negatively correlated gambles. With a laboratory experiment we show that although only a third of subjects display the preference for negatively correlated outcomes typical of comparison-convex utility, those subjects take a lot more risks in a social setting, resulting in significantly higher overall risk-taking. This would both explain the puzzling amount of portfolio under-diversification among households, as well as excessive risk-taking among financial professionals in the run-up to the financial crisis. Finally, the third essay experimentally investigates whether subjects focus on rank or social distance when comparing their outcomes. In the theoretical literature both specifications have been used. No support for a social rank effect is found, but a higher social reference point is found to be positively associated with more risky choices, thus lending credibility to the social distance utility hypothesis

Data for: Rank matters–The impact of social competition on portfolio choice

Abstract of associated article: 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

oegedijk/explainerdashboard: V0.4.7: categorical bug fixes

<h2>Version 0.4.7:</h2> <h3>Bug Fixes</h3> <ul> <li>fix merge_categorical_columns when there are no cats</li> <li>Handle pandas option setting context in case it doesn't exist</li> <li>Remove is_categorical_dtype as it is getting deprecated</li> </ul&gt