Being Watched in an Investment Game Setting: Behavioral Changes when Making Risky Decisions

29 Pages Posted: 1 May 2019 Last revised: 10 Aug 2020

See all articles by Z. Tingting Jia

Z. Tingting Jia

University of Arkansas at Little Rock

Matthew McMahon

West Chester University

Date Written: July 1, 2020

Abstract

We design a laboratory experiment to test for behavioral differences due to observation within a novel arena: investment games. We find that fund managers are more risk-averse when investors can observe their investment allocations. This effect is more pronounced when investors, in addition to observing the allocations, can also observe the investment outcomes. Interestingly, allowing investors to observe how their investment is allocated does not impact how much they invest. Last, when the outcome of the risky investment is public knowledge, disclosing managers' allocations leads them to return more tokens to investors and to expropriate fewer tokens for themselves at the end of the game, ceteris paribus. We discuss potential causes of these effects.

Keywords: Investment Game; Risk; Reciprocity; Trustworthiness; Experiment

JEL Classification: C71; D9; D81; D82; C91

Suggested Citation

Jia, Zi and McMahon, Matthew, Being Watched in an Investment Game Setting: Behavioral Changes when Making Risky Decisions (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=3376189 or http://dx.doi.org/10.2139/ssrn.3376189

Zi Jia (Contact Author)

University of Arkansas at Little Rock ( email )

Little Rock, AR 72201
United States

Matthew McMahon

West Chester University ( email )

West Chester, PA 19383
United States
1.610.436.2087 (Phone)
1.610.436.3170 (Fax)

HOME PAGE: http://https://sites.google.com/site/matthewjmcmahon21/home

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