We conduct a controlled laboratory experiment in which subjects dynamically choose to allocate their portfolio between (i) a safe asset, (ii) a risky asset, and (iii) a skewed asset with a negative expected value (a “bet”). Subjects repeat this process over multiple independent investment cycles and can sometimes acquire information about the performance of their peers. In this informationally rich environment, skewness seeking emerges as predominantly context- and state-dependent, rather than driven by risk preference traits. Although more than half of subjects persist in buying the bet, there is substantial learning to avoid it. Purchases are most frequent when subjects have more funds available and at the very end of the investment cycle. Subjects also show interest in their relative standing and buy more bets when their investment performs well but they unexpectedly learn that their peers are outperforming them.

We explore the extent to which aspirations – such as those forged in the course of social interactions – explain ‘puzzling’ behavioral patterns in investment decisions. We motivate an aspirational utility, reminiscent of Friedman and Savage (1948), where social considerations (e.g., status concerns) provide an economic foundation for aspirations. We show this utility can explain a range of observed investor behaviors, such as the demand for both right- and left-skewed assets; aspects of the disposition effect; and patterns in stock-market participation consistent with empirical observations. We corroborate our theoretical findings with two novel laboratory experimental studies, where we observed participants’ preference for skewness in risky lotteries shift as lab-induced aspirations shifted.

The Small Business Innovation Research (SBIR) program provides federally funded research awards to companies with 500 or fewer employees. We explore the differential effects of the National Aeronautics and Space Administration SBIR program on firms of various sizes on their future patenting activity. Using propensity score matching, we construct comparable samples of selected and non-selected Phase II SBIR applicants by firm size. We then estimate the effect of selection for the matched sample on the probability of forward patent activity and conditional on any forward patenting, the count of patents within three years of the proposal. While firms with fewer than 10 employees, are least likely to patent, their probability of patenting is positively affected by receiving a Phase II award. We find sparse evidence of corresponding increase for larger firms. Nor do we find any evidence that a Phase II award impacts the conditional number of forward patents in the three years following the award. These data suggest that the Phase II award serves to advance the smallest teams "over the hump" to creating a potential source of competitive advantage.