Erik Wengström (Lund University and Hanken School of Economics)
Delegation of Financial Decisions (with Martin Holmén, Felix Holzmeister, Michael Kirchler and Matthias Stefan)
Given the complexity of financial products and markets, private investors often opt for delegating decisions to financial professionals. Such decisions involve choices about portfolio investments, insurance, and pension plans, and seeking advice on various other financial aspects, all of which have a potentially strong impact on the customer’s wealth. Thus, it is surprising that research in economics and finance has traditionally focused on individual decision making, with little attention given to how delegation decisions by customers and delegated investment decisions by financial professionals are taken. In this project, we run a controlled lab-in-the field experiment with financial professionals (serving as investment managers) and subjects from the general population in Sweden (serving as customers). We examine (i) the motivations and characteristics of private investors to delegate financial decisions, (ii) differences in decision making quality between professionals and customers, (iii) the role of professionals’ incentives for both parties, and finally (iv) the professionals’ ability to construct portfolios that suit the risk attitudes of customers well. We show that investors take into account the professional’s incentive when deciding to delegate; professionals with aligned incentives are preferred over professionals with fixed incentives. Second, we report that trust in professionals, own decision-making quality, and overconfidence are important for the decision to delegate. In particular, we observe that those with high levels of trust in professionals delegate the most and that own decision-making quality and overconfidence are negatively related to delegation. Third, we find that overall decision-making quality of professionals is slightly higher compared to people from the general population. Hence, for those who delegate, this delegation decision pays off moderately. Finally, we report that professionals have difficulties in constructing portfolios conditional on the four risk-levels customers indicate.
- Date: 4 Oct 2019 14:30
- Ends: 4 Oct 2019 15:45
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Economicum building, seminar room 3-4
Helsinki, Arkadiankatu 7