Effects of wealth on portfolios under various investment conditions

The present study addresses two major issues of portfolio selection tasks with one risky and one riskless alternative: (i) the effect of changes in capital on the proportion of capital put in savings, and (ii) the effect of the investment conditions (favorable vs unfavorable) on saving behavior. These two issues were investigated experimentally in a computer-controlled, discrete-time, multistage betting game in which each of 28 subjects had to make about 400 betting and savings decisions. The two major findings are: (i) the proportion of capital saved increases with the amount of capital on hand, and (ii) the proportion of capital saved decreases with practice when the investment conditions are favorable and increases with practice when they are unfavorable.