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Skewness Seeking in a Dynamic Portfolio Choice Experiment

Author

Listed:
  • Carrillo, Juan
  • Brocas, Isabelle
  • Giga, Aleksandar
  • Zapatero, Fernando
Abstract
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.

Suggested Citation

  • Carrillo, Juan & Brocas, Isabelle & Giga, Aleksandar & Zapatero, Fernando, 2016. "Skewness Seeking in a Dynamic Portfolio Choice Experiment," CEPR Discussion Papers 11056, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11056
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    2. Cristina Sacala, 2016. "Portfolio Dynamics. A Macroeconomic Model," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(3), pages 170-176, July.

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    More about this item

    Keywords

    Laboratory experiment; Portfolio allocation; Skewed asset; Relative performance;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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