The more trust investors place in a money manager, the more confident they are to take risk (Gennaioli, Shleifer, and Vishny, 2015). We test this theory in a laboratory experiment using the amount returned from a trust game as measure of trustworthiness. Investors increase the share invested risky with high-cost money managers compared to those with low costs when the high-cost money managers are more trustworthy than the low-cost ones. The willingness to take more risk with high-cost money managers is increasing in the difference in trustworthiness. Up to a third of the difference in trustworthiness translates into an increasing risky share. Vice versa, investors are willing to accept higher costs for investments made through more trustworthy money managers. Our findings are robust to alternative explanations, demonstrating that the risk-aversion channel can be sufficient for trust to influence behavior.

Presentations (selection): AFA, ESA, Mannheim Brownbag

We experimentally study how information partitioning affects learning and beliefs. Holding the informational content constant, we show that processing small pieces of iinformation at higher frequency (narrow brackets) causes beliefs to become overly sensitive to recent signals compared to processing larger pieces of information at lower frequency (broad brackets). As a result, partitioning information in narrow or broad brackets causally affects judgments. As mechanism, we provide direct evidence that partitioning information into narrower brackets shifts attention from the macro-level to the micro-level, which leads people to overweight recent signals when forming beliefs.

Presentations (selection): Paris December Finance (scheduled) FIRS, AFA, SJDM, DGF, Experimental Finance, SAFE Household Finance Workshop, MBEES, Mannheim Brownbag

We experimentally examine the channels underlying peer effects in financial markets. We hypothesize that individuals are uncertain about how to process information regarding financial markets and thus look among their peers for someone who is more capable in processing the information – an expert. Our experimental evidence supports this hypothesis: Peers with higher relative expertise are followed more strongly. In our experimental design, peers do not possess additional information to ensure that our results are driven by the ability to process common information. We therefore introduce a new channel to the peer effects literature – information processing.

Presentations (selection): Experimental Finance, AFA, DGF, MBEES, LSE PhD Seminar, Mannheim Brownbag, ZEW

We show that individuals consider counterfactual outcomes when evaluating their investment decisions. Using individual investor trading data, we find that the likelihood of a sale is higher for stocks that performed better than an alternative investment than for stocks that performed worse than the alternative investment. This effect exists when considering the overall market as well as the focal stock’s industry as an alternative investment. It is distinct from (and can even subsume) the Disposition Effect, the Portfolio-Driven Disposition Effect, the Rank Effect, and cannot be explained by stock characteristics. The evidence thus highlights that individuals do not evaluate financial investments in isolation, but in relation to alternative investments they could have made instead.

Presentations (selection): SJDM (scheduled), DGF (scheduled),  SAFE Household Finance Workshop