Skip to main content

Risky Decisions: Revealing Economic Behaviour

Periodic Reporting for period 3 - RDRECON (Risky Decisions: Revealing Economic Behaviour)

Reporting period: 2018-05-01 to 2019-10-31

The goal of the proposed research program is to understand how personal and market experiences affect financial decisions by individuals. RDRECON’s strength and path-breaking innovation is its combination of administrative register data and controlled field and natural experiments to form treatment and control groups of interest which allow empirical identification of theoretical predictions. This approach puts theory to work and overcomes the limits of identification in non- or quasi-natural experiments. To this end, RDRECON works on our understanding of causal effects of households responses to personal and market experiences, and provide helpful insights for policy makers.
We are now at the mid-term milestone of the project, and we have developed the necessary legal framework to run experiments, the technology to run them, the theoretical foundation, we have also identified natural experiments in the administrative data necessary for identification, and finally have run pilot experiments through statistics Denmark. We are now preparing the larger field experiments in the field for the Autumn 2018 that will allow us to deliver all the final deliverables for the grant proposal. as outlined in the original action plan of the proposal. Our innovative methodology of recruiting directly from the administrative datasets has been tested in the pilot we mentioned above. The preliminary results look very promising and great, and we are now turning the pilot experiments into full studies on behavioural finance. To run such a pilot we had to set up a legal procedure and framework, where we could invite individuals of interest through the administrative data (for example individuals with specific trading behaviour), without violating their privacy rights. We have done this in collaboration with Statistics Denmark, where we have invited individuals in the pilot experiment that have shown in administrative data that (i) they have displayed the disposition effect (the tendency to sell winning stocks and keep losing stocks), and (ii) they have experienced large background risk outcomes, such as health risk or default risk from bankrupted banks.
Through the experimental planning phase, both statistics Denmark, other researchers in Denmark and outside Denmark, as well as the public has greatly learned from the possibilities given by this methodology. The latter makes it possible to learn something about groups of interest, that otherwise would be hard to identify in a random sample approach. To this end, many by-product projects using this methodology are now underway to start.