Experimental study of budget constraint, operating period and investor risk propensity

Abstract

Based on the method of experimental economics, this paper tests the effect of budget constraint strength on investor risk preference by 4 static experiments and 4 dynamic experiments. The results indicated that the soft budget constraint improved the degree of investors' risk preference. With the increase of budget constraint intensity, the ratio of risk avoidance is reduced. On the other hand, duration of operation reduces the subjects' risk preference. In decision-making, the subjects show adventure in extremely high or low assets and relative risk aversion in the medium assets. The previous income also affects subjects' current investment choices. When previous income is positive, the subjects' risk attitude tends to drift toward the risk preference. Male are more adventurous than female in investment options, but this gender difference isn't significant in moderate soft budget constraint. The soft budget constraint actually increased the duration of operation. Effect of mental account will increase the risk propensity of subjects.

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