Soft Budget Constraint, Continuous Operation and Drift of Risk Preference of Investors-The Evidence from Laboratory Experiment

Since the 1980s, scholars have extensively refined thought about the concept of Kornai's soft budget constraint. If soft budget constraint does exist, as a fact or self-evident customary practice, it will naturally form an institutional arrangement on the belief-level of the investors, thereby changes their preferences. Among the large number of literatures, we are the first to use the method of laboratory experiment to verify this phenomenon. This paper designs a soft budget constraint market with 4 kinds of treatment variables. The experimental results indicate that: (1) soft budget constraint strengthens the risk preference of investors; (2) the continuous operation plays a reverse role in risk preference. That is to say, soft budget constraint strengthens the risk preference of investors, while continuous operation weakens it; in the same continuous operation circumstance, the soft budget constraint increases the risk preference of investors.