Household Portfolio Underdiversification and Probability Weighting: Evidence from the Field

• 成果类型: Article
• 署名作者: Dimmock, Stephen G.; Kouwenberg, Roy; Mitchell, Olivia S.; Peijnenburg, Kim
• 署名单位: National University of Singapore; Mahidol University; Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC; University of Pennsylvania; National Bureau of Economic Research; Universite Catholique de Lille; EDHEC Business School; Centre for Economic Policy Research - UK
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa131
• 发表日期: 2021
• 页码: 4524
• 关键词: PROSPECT-THEORY; financial literacy; PREFERENCES EVIDENCE; utility-theory; stock returns; RISK; diversification; Heterogeneity; CHOICE; lotteries

摘要

We test whether probability weighting affects household portfolio choice in a representative survey. On average, people display inverse-S-shaped probability weighting, overweighting low probability events. As theory predicts, probability weighting is positively associated with portfolio underdiversification and significant Sharpe ratio losses. Analyzing respondents' individual stock holdings, we find higher probability weighting is associated with owning lottery-type stocks and positively skewed equity portfolios. People with higher probability weighting are less likely to own mutual funds and more likely to either avoid equities or hold individual stocks. We are the first to empirically link individuals' elicited probability weighting and real-world decisions under risk.