Abstract
In a series of experiments, subjects allocate an endowment between assets. One of the assets, a bond or a composite asset, is dominated by a combination of two volatile assets. We explore settings and preferences that result in the dominated asset being chosen. The results show that subjects persist in allocating a significant portion of their funds to the dominated asset after 200 rounds. This finding can be explained by risk-averse investors' inability to treat a combination of assets as a single distribution of payoffs. We find that risk-averse investors are more likely to persist in choosing dominated assets.
Original language | English |
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Pages (from-to) | 181-198 |
Number of pages | 18 |
Journal | Journal of Economics and Business |
Volume | 59 |
Issue number | 3 |
DOIs | |
State | Published - 2007 |
Externally published | Yes |
Keywords
- Experiments
- Hedging
- Risk