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Delegation Decisions in Finance

Holzmeister, Felix ; Holmén, Martin ; Kirchler, Michael ; Stefan, Matthias and Wengström, Erik LU (2020) In Working Papers
Abstract
We run an online experiment with finance professionals and subjects from the general population (clients) to examine drivers and implications of clients' delegation decisions. We find that clients favor delegation to investment algorithms, followed by delegation to finance professionals with aligned incentives and lastly to those with fixed incentives. We also show that trust in investment algorithms or money managers (finance professionals), respectively, and clients' propensity to shift blame on others increases the likelihood of delegation, whereas own decision-making quality is associated with a decrease. In measuring the implications of clients' delegation decisions, we report high variability among finance professionals' perceptions... (More)
We run an online experiment with finance professionals and subjects from the general population (clients) to examine drivers and implications of clients' delegation decisions. We find that clients favor delegation to investment algorithms, followed by delegation to finance professionals with aligned incentives and lastly to those with fixed incentives. We also show that trust in investment algorithms or money managers (finance professionals), respectively, and clients' propensity to shift blame on others increases the likelihood of delegation, whereas own decision-making quality is associated with a decrease. In measuring the implications of clients' delegation decisions, we report high variability among finance professionals' perceptions of clients' preferred risk levels. We show that this results in overlaps in portfolio risk across risk-levels of clients, indicating problems of risk communication between clients and their money managers. (Less)
Please use this url to cite or link to this publication:
author
; ; ; and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
experimental finance, finance professionals, delegation decisions, C93, G11, G41
in
Working Papers
issue
2020:24
pages
46 pages
language
English
LU publication?
yes
id
45f31a28-9daa-49c2-9aae-f2efb775de13
alternative location
https://swopec.hhs.se/lunewp/abs/lunewp2020_024.htm
date added to LUP
2020-11-27 15:48:22
date last changed
2020-11-27 15:48:22
@misc{45f31a28-9daa-49c2-9aae-f2efb775de13,
  abstract     = {{We run an online experiment with finance professionals and subjects from the general population (clients) to examine drivers and implications of clients' delegation decisions. We find that clients favor delegation to investment algorithms, followed by delegation to finance professionals with aligned incentives and lastly to those with fixed incentives. We also show that trust in investment algorithms or money managers (finance professionals), respectively, and clients' propensity to shift blame on others increases the likelihood of delegation, whereas own decision-making quality is associated with a decrease. In measuring the implications of clients' delegation decisions, we report high variability among finance professionals' perceptions of clients' preferred risk levels. We show that this results in overlaps in portfolio risk across risk-levels of clients, indicating problems of risk communication between clients and their money managers.}},
  author       = {{Holzmeister, Felix and Holmén, Martin and Kirchler, Michael and Stefan, Matthias and Wengström, Erik}},
  keywords     = {{experimental finance; finance professionals; delegation decisions; C93; G11; G41}},
  language     = {{eng}},
  month        = {{11}},
  note         = {{Working Paper}},
  number       = {{2020:24}},
  series       = {{Working Papers}},
  title        = {{Delegation Decisions in Finance}},
  url          = {{https://swopec.hhs.se/lunewp/abs/lunewp2020_024.htm}},
  year         = {{2020}},
}