Being Watched in an Investment Game Setting: Behavioral Changes when Making Risky Decisions
29 Pages Posted: 1 May 2019 Last revised: 10 Aug 2020
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: Suggested Citation