Abstract
Rankings are omnipresent in the finance industry, yet the literature is silent on how they impact financial professionals' behavior. Using lab-in-the-field experiments with 657 professionals and lab experiments with 432 students, we investigate how rank incentives affect investment decisions. We find that both rank and tournament incentives increase risk-taking among underperforming professionals, while only tournament incentives affect students. This rank effect is robust to the experimental frame (investment frame vs. abstract frame), to payoff consequences (own return vs. family return), to social identity priming (private identity vs. professional identity), and to professionals' gender (no gender differences among professionals).
| Original language | English |
|---|---|
| Pages (from-to) | 2271-2302 |
| Number of pages | 32 |
| Journal | Journal of Finance |
| Volume | 73 |
| Issue number | 5 |
| DOIs | |
| Publication status | Published - 1 Oct 2018 |
| Externally published | Yes |
Funding
∗All authors contributed equally. Michael Kirchler is in the Department of Banking and Finance, University of Innsbruck, and Department of Economics, Centre for Finance, University of Gothenburg. Florian Lindner is at Max Planck Institute for Research on Collective Goods, Bonn. Utz Weitzel is at the Utrecht University School of Economics, and Institute for Management Research, Radboud University. We are grateful to the Editor, Bruno Biais, one Associate Editor, and two anonymous referees for excellent and constructive comments during the editorial process. We thank Loukas Balafoutas; Gary Charness; Alain Cohn; Oege Dijk; Florian Englmaier; Sascha Füllbrunn; Cary Frydman; Maximilian Germann; Fabian Herweg; Jürgen Huber; Michel Andre Marechal; Peter Martinsson; Kurt Matzler; Stefan Palan; David Porter; Jianying Qiu; Stephanie Rosenkranz; David Schindler; Simeon Schudy; Joep Sonnemans; Matthias Stefan; Rudi Stracke; Matthias Sutter; Alexander Wagner; Janette Walde; Erik Wengström; Stefan Zeisberger; seminar participants at the Universities of Bergen, Innsbruck, Lund, Munich, Nijmegen, London, Salzburg, Trento, Trier, and Utrecht; as well as conference participants at the AEA Annual Meeting 2017 in Chicago, Hållbara Finanser in Stockholm 2017, Status and Social Image Workshop (WZB) 2017 in Berlin, Experimental Finance 2017 in Nizza, Research in Behavioral Finance Conference 2016 in Amsterdam, Behavioral Economics of Financial Markets Workshop in Zurich 2016, EFA 2016 in Oslo, ESA 2016 in Bergen, ESA 2015 in Heidelberg, Experiment a BIT 2015 in Trento, Experimental Finance 2015 in Nijmegen, and eeecon Workshop 2015 in Innsbruck for valuable comments. We are grateful to Enrico Calabresi, Michael Dünser, Achiel Fenneman, Felix Holzmeister, Dirk-Jan Janssen, Patricia Leitner, Fritz Pöllmann, Melanie Prossliner, Lorenz Titzler, Alexander Wolf, and Jan Zatocil for excellent research assistance. We particularly thank Rani Piputri and all participating financial institutions and professionals for valuable collaboration. Financial support from the Austrian Science Fund (FWF START-grant Y617-G11 and SFB F63), Radboud University, and the Swedish Research Council (grant 2015-01713) is gratefully acknowledged. This study was ethically approved by the IRB (Internal Review Board) of the University of Innsbruck. All three authors declare that they have no additional relevant or material financial interests that relate to the research described in this paper.
| Funders | Funder number |
|---|---|
| Radboud Universiteit | |
| Austrian Science Fund | SFB F63, Y617-G11 |
| Vetenskapsrådet | 2015-01713 |
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Dataset for: Rankings and risk taking in the finance industry
Weitzel, U. (Creator), Wiley, 2018
Dataset / Software: Dataset