Behavioral Economics Seminar: Saliency effects in investment choices: An experiment
The Behavioral Economics group at IFRO invite to open seminars with a range of subjects within Behavioral Economics.
Alexander Christopher Sebald, Associate Professor at Department of Economics, UCPH, will give the presentation Saliency effects in investment choices: An experiment.
We study whether people’s investment behavior is influenced by saliency effects as proposed by Bordalo et al. (2012) and Bordalo et al. (2013). To this end, we develop a theoretical framework as the basis for an experimental study in which agents have to make an investment decision across multiple rounds. More specifically, similar to the lottery choice experiment used in Gneezy and Potters (1997), agents in our experiment have to decide – over multiple rounds/experimental conditions –how much of an endowment to invest into a ‘safe’ and a ‘risky’ asset. With the help of our theoretical set-up we identify parameter values for which an investor acting according to e.g. expected utility theory or prospect theory will not change the allocation of his assets across the rounds in our experiment. Agents affected by salience, however, are expected to invest more (or less) into the ‘risky’ asset across our experimental conditions, the more salient the upside (or downside) of the risky asset. Using the identified parameters we run a laboratory experiment to empirically test for the relevance of salience in our investment context. Results indicate the presence of saliency effects in people’s investment choices.
Bordalo, P., Gennaioli, N., Shleifer, A., 2012. Salience theory of choice under risk. The Quarterly journal of economics 127 (3), 1243–1285.
Bordalo, P., Gennaioli, N., Shleifer, A., 2013. Salience and asset prices. The American Economic Review 103 (3), 623.
Gneezy, U., Potters, J., 1997. An experiment on risk taking and evaluation periods. The Quarterly Journal of Economics, 631–645.