Time Delay and Investment Decisions: Evidence from an Experiment in Tanzania

TL;DR

This study investigates how introducing a time delay before executing an investment plan affects individuals' risk preferences, finding that longer delays lead to higher risky asset investments.

Contribution

It provides experimental evidence that delaying execution increases risk-taking in investment decisions, a novel insight into temporal effects on risk preferences.

Findings

Longer delays before execution increase risky asset investment.

Risk preferences are influenced by the timing of execution.

Experimental evidence from Tanzania supports the effect.

Abstract

Attitudes toward risk underlie virtually every important economic decision an individual makes. In this experimental study, I examine how introducing a time delay into the execution of an investment plan influences individuals' risk preferences. The field experiment proceeded in three stages: a decision stage, an execution stage and a payout stage. At the outset, in the Decision Stage (Stage 1), each subject was asked to make an investment plan by splitting a monetary investment amount between a risky asset and a safe asset. Subjects were informed that the investment plans they made in the Decision Stage are binding and will be executed during the Execution Stage (Stage 2). The Payout Stage (Stage 3) was the payout date. The timing of the Decision Stage and Payout Stage was the same for each subject, but the timing of the Execution Stage varied experimentally. I find that individuals who were assigned to execute their investment plans later (i.e., for whom there was a greater delay prior to the Execution Stage) invested a greater amount in the risky asset during the Decision Stage.