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Investment, Resolution of Risk, and the Role of Affect

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Author Info
Hopfensitz, Astrid
Krawczyk, Michal
van Winden, Frans A.A.M.

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Abstract

This experimental study is concerned with the impact of the timing of the resolution of risk on people’s willingness to take risks, with a special focus on the role of affect. While the importance of anticipatory emotions has so far been only inferred from decisions regarding hypothetical choice problems, we had participants put their own money at risk in a real investment task. Moreover, emotions were explicitly measured, including anticipatory emotions experienced during the waiting period under delayed resolution (which involved two days). Affective traits and risk attitudes were measured through a web-based questionnaire before the experiment and participants’ preferences for resolution timing, risk, and time were incentive compatibly measured during the experiment. Main findings are that delayed resolution can affect investment, that the effect depends on the risk involved, and that (among all the measures considered) only emotions can explain our results, albeit in ways that are not captured by existing models.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6822.

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Date of creation: May 2008
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Handle: RePEc:cpr:ceprdp:6822

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Related research
Keywords: delayed resolution of risk; emotions; experiment; Investment decision;

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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