What determines investors' risk-taking across macroeconomic cycles? Researchers have proposed rational expectations models that introduce countercyclical risk aversion to generate the empirically observed time variation in risk-taking. We test whether systematic deviations from rational...

We experimentally examine the mechanisms underlying peer effects in financial markets. We hypothesize that individuals are not too confident about how to process information regarding financial markets and thus look among their peers for someone who is more capable in processing the information...

Bayes' Theorem has an implicit, fundamental rule of how subjects should incorporate informationally equivalent signals of opposite direction: two opposite-directional signals should cancel out such that prior beliefs remain constant. In this study, we test whether agents always follow this...

How do individuals process non-diagnostic information? According to Bayes’ Theorem, signals which do not carry relevant information about the objective state of the world are treated as if no signal occurred. This paper provides experimental evidence that individuals update their expectations...

This paper evaluates numerous diversification strategies as a possible remedy against widespread costly investment mistakes of individual investors. Our results reveal that a very broad range of simple heuristic allocation schemes offers similar diversification gains as well-established or...

In a panel survey of individual investors, we show that investors’ second-order beliefs—their beliefs about the return expectations of other investors—influence investment decisions. Investors who believe others hold more optimistic stock market expectations allocate more of their own...

Previous research indicates that a lack of financial sophistication might explain the past strong growth in active management. We construct an objective financial literacy score and analyze the relation between financial literacy and mutual fund investment behavior. We show that there is a...

Portfolio choice and the implied asset pricing are usually derived assumingmaximization of expected utility. In this Paper, they are derived from risk-value models that generalize the Markowitz-model. We use a behaviourally-based risk measure with an endogenous or exogenous benchmark...

This paper reports the results of an experiment on portfolio choice in the presence of nontradeable income. The nontradeable income part could either be riskless or risky (background risk). (...)

This paper determines the results of experiments on portfolio choice in the presence of nontradeable income. The nontradeable income part could either be riskless or risky.