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Delegated Decision-Making in Finance

Author

Listed:
  • Holzmeister, Felix

    (University of Innsbruck)

  • Holmén, Martin
  • Kirchler, Michael
  • Stefan, Matthias
  • Wengström, Erik

    (Lund University)

Abstract

We run an online experiment with 408 finance professionals (money managers) and 550 subjects from the general population in Sweden (clients). We examine drivers of clients' delegation decisions, differences in decision-making quality between both groups, and professionals' ability to implement investment portfolios that suit the clients' risk attitudes. We find that clients' trust in money managers increases the likelihood of delegating their investment decisions, whereas decision-making quality is associated with a decrease. We further show that decision-making quality of finance professionals is not significantly higher compared to their clients' when controlling for risk taking. Finally, we observe high variability among professionals' perception of delegated risk levels and overlaps in portfolio risk across self-reported risk-levels of clients. This finding indicates that communicating risk between clients and professionals constitutes a potential pitfall in delegated investment decisions.

Suggested Citation

  • Holzmeister, Felix & Holmén, Martin & Kirchler, Michael & Stefan, Matthias & Wengström, Erik, 2019. "Delegated Decision-Making in Finance," OSF Preprints 3umdf, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:3umdf
    DOI: 10.31219/osf.io/3umdf
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    1. Felix Holzmeister & Martin Holmén & Michael Kirchler & Matthias Stefan & Erik Wengström, 2023. "Delegation Decisions in Finance," Management Science, INFORMS, vol. 69(8), pages 4828-4844, August.
    2. Eriksen, Kristoffer W. & Kvaløy, Ola & Luzuriaga, Miguel, 2020. "Risk-taking on behalf of others," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    3. Kling, Luisa & König-Kersting, Christian & Trautmann, Stefan T., 2023. "Investment preferences and risk perception: Financial agents versus clients," Journal of Banking & Finance, Elsevier, vol. 154(C).
    4. Matthias Stefan & Martin Holmén & Felix Holzmeister & Michael Kirchler & Erik Wengström, 2022. "You can’t always get what you want—An experiment on finance professionals' decisions for others," Working Papers 2022-02, Faculty of Economics and Statistics, Universität Innsbruck.
    5. Sebastian Bachler & Felix Holzmeister & Michael Razen & Matthias Stefan, 2021. "The Impact of Presentation Format and Choice Architecture on Portfolio Allocations: Experimental Evidence," Working Papers 2021-15, Faculty of Economics and Statistics, Universität Innsbruck.
    6. Kling, Luisa & König-Kersting, Christian & Trautmann, Stefan T., 2019. "Investment Preferences and Risk Perception: Financial Agents versus Clients," Working Papers 0674, University of Heidelberg, Department of Economics.

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