Factors affecting the impact of investors’ Horizon on asset allocation decisions: An experimental exploration

For 50 years, there has been a theoretical and practical debate concerning the effect of an investment horizon on the optimal proportion of risky assets. One side claims that expected-utility investors should or can be myopic because under a set of plausible assumptions, an investment horizon is irrelevant to selecting the optimal proportion of risky assets. The supporters of the other side assume different utility functions under which an investment horizon should have a crucial effect on risk-taking decisions, but many of those who support this approach claim that investors do invest myopically and that this can explain the well-known equity premium puzzle (EPP).Using an incentive-compatiblemulti-stage investment, game we explore the factors that affect the impact of horizon on the allocation decision. The results indicate that participants’ behaved myopically and that this behavior depends on their initial risk entering level “status quo”. Specifically, only participants with an initially low risk-taking level behaved myopically. In addition, the level of education had a significant effect on the allocation decision while the gender, age and wealth were did not had such effect.