The Standard Portfolio Choice Problem in Germany

We study an investment experiment conducted with a representative sample of German households. Respondents invest in a safe asset and a risky asset whose return is tied to the German stock market. Experimental investments correlate with beliefs about stock market returns and exhibit desirable external validity: they predict real-life stock market participation. But many households do not significantly react to an exogenous increase in the risky asset’s return. The data analysis and a series of additional laboratory experiments suggest that task complexity decreases the responsiveness to incentives. Modifying the safe asset’s return has a larger effect than modifying the risky asset’s return.