Please answer all the control questions. They serve as a test for your understanding of the experiment. After the quiz, you will get one dollar as a reward.
As this is a multi-player task, you may need to wait for up to 15 minutes to start the experiment after finishing the quiz. If there are not enough players in 15 minutes, you can still get one dollar after completing the quiz and waiting for 15 minutes.
Note that you can only get the reward of one dollar after finishing the whole hit or waiting for 15 minutes. If you finished the quiz but you didn't complete the following task or leave the hit without waiting for 15 minutes, you would earn nothing.
Your task
You and the other five people will act as fund managers. Each of you manages a fund invested by other investors (the experimenter). At the beginning of the experiment, you start with a fund wealth of 300 Points. You have to decide in each of fifteen rounds, what percentage of fund wealth you want to invest at a risk-free rate of 2.5% and the percentage you wish to invest in a stock index. The development of the stock index reflects the price development of a basket of shares and is based on actual historical data. In the last 20 years, this development is characterized by price fluctuations. In this round, the stock index earned a return of 11.0% and has a standard deviation of the returns of 30.2%.
Here are some examples on the likelihood of various return fluctuations of stock index:
In 50 out of 100 cases, the return lies between −9.4% and 31.4%.
In 75 out of 100 cases, the return lies between −23.7% and 45.7%.
In 90 out of 100 cases, the return lies between −38.7% and 60.7%.
In 95 out of 100 cases, the return lies between −48.2% and 70.2%.
Instructions Con’t
In each round you can invest between 0 and 200% of current fund wealth in the stock index. If you invest more than 100% of fund wealth, then the fraction which exceeds 100% is borrowed at the risk-free rate of 2.5%. If you are investing less than 100% of your wealth in the stock index, the amount not invested in the stock index is invested at the risk-free rate of 2.5%.
At the end of each round the actual return of the stock index is randomly determined from the distribution described in the former page and the fund wealth will be calculated according to your investment in the stock index and in the risk-free rate. Note that the stock index return is identical for all group members.
Example 1: Assume your Points are 300, and you decide to allocate a fraction of 50% to the stock index. Thus, the remaining 50% will be allocated to risk-free asset. If the stock index provides a random return number of +10.0%, then fund wealth in the next round will be as follows:
Points from the stock index: (50% allocation * 300 Points) * 10% random number = 15 Points;
Points from the risk-free asset: (50% allocation * 300 Points) * 2.5% fixed payout = 3.75 Points;
Total Points in the subsequent round: 300 previous round’s Points + 15 + 3.75 = 318.75 Points
Example 2: Assume your Points are 300, and you decide to allocate a fraction of 150% to the stock index. Thus, the you have to pay a cost of 2.5% for the amount exceeding 100%. If the stock index provides a random return number of +10.0%, then fund wealth in the next round will be as follows:
Points from the stock index: (150% allocation * 300 Points) * 10% random number = 45 Points;
Points fee from the amount exceeding 100%-allocation: (－50% * 300 Points) * 2.5% costs = －3.75 Points;
Total Points in the subsequent round: 300 previous round’s Points + 45 － 3.75 = 341.25 Points
Payment
At the end of the experiment, all of you will be ranked from one to six in descending order by the final fund wealth. The median final fund wealth is the average final fund wealth of the rank three and rank four.
If you finish the experiment in rank four to six, you will receive the 25% of the final fund wealth minus additional 50% of the fund wealth less than median final fund wealth: Your final Points = 0.25 * final fund wealth －0.5 * (median final fund wealth － final fund wealth).
If you finish the experiment in rank one to three, you will receive the 25% of the final fund wealth: Your final Points = 0.25 * final fund wealth.
1. Fund wealth is carried over from one round to the next. For example, if the fund wealth is 330 Points at the end of round 1, the fund wealth you can allocate in round 2 will be 330 Points.
{% formfield player.quiz1 %}2. At the end of the experiment (at the end of round 20), the fund wealth is 1000 Points. The other five group members’ fund wealth are 500, 700, 800, 1200, 1600 Points. So, the median fund wealth in your group is 900 Points. What is:
{% formfield player.quiz6_1 %}3. At the end of the experiment (at the end of round 20), the fund wealth is 1000 Points. The other five group members’ fund wealth are 1000, 1200, 1500, 1600, 500 Points. So, the median fund wealth in your group is 1100 Points. What is:
{% formfield player.quiz7_1 %} {% next_button %} {% endblock %}