Motives for Delegating Financial Decisions

TL;DR

This study investigates why investors delegate financial decisions, revealing that blame shifting and decision costs are primary motives, with some chasing past performance, while risk acceptance is not a significant factor.

Contribution

It provides experimental evidence disentangling four motives for delegation, highlighting the prominence of blame shifting and decision costs in investor behavior.

Findings

Many investors delegate trivial tasks, indicating blame shifting.

Delegation increases with task complexity, showing decision cost influence.

Some investors chase high-performing experts, indicating performance chasing.

Abstract

Why do some investors delegate financial decisions to supposed experts? We report a laboratory experiment designed to disentangle four possible motives. Almost 600 investors drawn from the Prolific subject pool choose whether or not to delegate a real-stakes choice among lotteries to a previous investor (an ``expert'') after seeing information on the performance of several available experts. We find that a surprisingly large fraction of investors delegate even trivial choice tasks, suggesting a major role for the blame shifting motive. A larger fraction of investors delegate our more complex tasks, suggesting that decision costs play a role for some investors. Some investors who delegate choose a low quality expert with high earnings, suggesting a role for chasing past performance. We find no evidence for a fourth possible motive, that delegation makes risk more acceptable.