Document Type
Article
Publication Date
2018
Keywords
risk preferences, time preferences, investment decisions, behavioral economics, loss aversion, reference-dependent preferences
Abstract
Attitudes toward risk underlie virtually every important economic decision an individual makes. In this experimental study, I examine how introducing a time delay into the execution of an investment plan influences individuals’ risk preferences. The field experiment proceeded in three stages: a decision stage, an execution stage and a payout stage. At the outset, in the Decision Stage (Stage 1), each subject was asked to make an investment plan by splitting a monetary investment amount between a risky asset and a safe asset. Subjects were informed that the investment plans they made in the Decision Stage are binding and will be executed during the Execution Stage (Stage 2). The Payout Stage (Stage 3) was the payout date. The timing of the Decision Stage and Payout Stage was the same for each subject, but the timing of the Execution Stage varied experimentally. I find that individuals who were assigned to execute their investment plans later (i.e., for whom there was a greater delay prior to the Execution Stage) invested a greater amount in the risky asset during the Decision Stage.
Recommended Citation
Nikolov, P. (2018). Time delay and investment decisions: Evidence from an experiment in Tanzania. Economics Bulletin, 38(2), 1124-1137.
Included in
Behavioral Economics Commons, Cognition and Perception Commons, Cognitive Psychology Commons, Economic Theory Commons, Experimental Analysis of Behavior Commons, Finance and Financial Management Commons, Other Economics Commons