Trust and Delegated Investing: A Money Doctors Experiment

Abstract

The more trust investors place in a money manager, the more confident they are to take risk (Gennaioli, Shleifer, and Vishny 2015). We test this theory in a laboratory experiment using the amount returned from a trust game as measure of trustworthiness. Investors increase the share invested risky with high-cost money managers compared to those with low costs when the highcost money managers are more trustworthy than the low-cost ones. The willingness to take more risk with high-cost money managers is increasing in the difference in trustworthiness. Up to a third of the difference in trustworthiness translates into an increasing risky share. Vice versa, investors are willing to accept higher costs for investments made through more trustworthy money managers. Our findings are robust to alternative explanations, demonstrating that the riskaversion channel can be sufficient for trust to influence behavior.