Financial decision-making on behalf of another

Abstract: Financial decisions that concerns us are not always made by ourselves. In real life, many situations arise when the decisions are taken for us by a third person. Examples of this are when policy makers decide for us and when brokers handle our investments. Others are estimating the risks for us and makes financial decisions from their perception of the situation and perhaps their own risk preferences. This field has scarcely been studied, even though the constellation appears in our everyday life. By establishing the basis of a financial decision, one can conclude whether or not it makes more sense to either make the decisions individually or to let someone else make them for you. This paper is examining this decision-making process on behalf of another when an individual stand in front of lotteries with negative expected value. It is shown that the decision-makers does not act according to expected value maximization when deciding on behalf of someone else. This could depend on the fact that many estimated the preferences of their partner and acted accordingly. Many of the decisions were presumably influenced by skewed perception of the prospect, which was also affecting the choices. Thus, according to this study, one should decide for themselves when facing a lottery with negative expected value.