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Keep Up With the Winners: Evidence on Risk Taking, Asset Integration, and Peer Effects

Jan 2014
Working Paper
527
Marcel Fafchamps, Bereket Kebede, Daniel John Zizzo

The paper reports the result of an experimental game on asset integration and risk taking. We and some evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. Controlling for past winnings, participants receiving a low endowment in a round engage in more risk taking. We test a 'keeping-up-with-the-Joneses' hypothesis and and some evidence that subjects seek to keep up with winners, though not necessarily average earnings. Overall, the evidence is consistent with risk taking tracking a reference point affected by social comparisons.

Publication Keywords: 
Risk
Asset Integration
Social Comparisons
Prospect Theory