Experiments on Portfolio Selection: A comparison between quantile preferences and expected utility decision models.

L. De Castro, A. Galvao, J.-Y. Kim, G. Montes-Rojas and J. Olmo (2022). Experiments on Portfolio Selection: A comparison between quantile preferences and expected utility decision models. Journal of Behavioral and Experimental Economics. Published online at https://doi.org/10.1016/j.socec.2021.101822

This paper conducts a laboratory experiment to assess the optimal portfolio allocation
under quantile preferences (QP) and compares the model predictions with those of a meanvariance
(MV) utility function. We estimate the risk aversion coecients associated to the
individuals' empirical portfolio choices under the QP and MV theories, and evaluate the
relative predictive performance of each theory. The experiment assesses individuals' preferences
through a portfolio choice experiment constructed from two assets that may include
a risk-free asset. The results of the experiment conrm the suitability of both theories to
predict individuals' optimal choices. Furthermore, the aggregation of results by individual
choices oers support to the MV theory. However, the aggregation of results by task, which
is more informative, provides more support to the QP theory. The overall message that
emerges from this experiment is that individuals' behavior is better predicted by the MV
model when it is dicult to assess the dierences in the lotteries' payo distributions but
better described as QP maximizers, otherwise.

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