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Investment, Resolution of Risk, and the Role of Affect

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  • Hopfensitz, Astrid
  • Krawczyk, Michal
  • van Winden, Frans A.A.M.

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

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Citations

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Cited by:
  1. Couture, Stéphane & Reynaud, Arnaud, 2010. "Stability of Risk Preference Measures: Results from a Field Experiment on French Farmers," TSE Working Papers 10-151, Toulouse School of Economics (TSE).
  2. Anna Conte & Maria Vittoria Levati & Chiara Nardi, 2014. "Risk preferences and the role of emotions," Working Papers 10/2014, University of Verona, Department of Economics.
  3. Drouvelis, Michalis & Metcalfe, Robert & Powdthavee, Nattavudh, 2010. "Priming Cooperation in Social Dilemma Games," IZA Discussion Papers 4963, Institute for the Study of Labor (IZA).
  4. Humphreys, Brad R. & Paul, Rodney J. & Weinbach, Andrew P., 2013. "Consumption benefits and gambling: Evidence from the NCAA basketball betting market," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 376-386.
  5. Hopfensitz, Astrid & Krawczyk, Michal & van Winden, Frans A.A.M., 2008. "Investment, Resolution of Risk, and the Role of Affect," CEPR Discussion Papers 6822, C.E.P.R. Discussion Papers.
  6. Cahit Guven, 2008. "Reversing the Question. Does Happiness Affect Consumption and Savings Behavior?," Economics Series 2008_20, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  7. Toke Fosgaard, 2011. "The Emotional Consequences of Pro-social Behavior in Markets," IFRO Working Paper 2012/1, University of Copenhagen, Department of Food and Resource Economics.
  8. Kocher, Martin G. & Krawczyk, Michal & van Winden, Frans, 2014. "‘Let me dream on!’ Anticipatory emotions and preference for timing in lotteries," Journal of Economic Behavior & Organization, Elsevier, vol. 98(C), pages 29-40.
  9. Gambetti, Elisa & Giusberti, Fiorella, 2012. "The effect of anger and anxiety traits on investment decisions," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1059-1069.
  10. Jérémy Celse, 2010. "Envy in Othello. Can effort explain such a tragic issue?," Working Papers 10-23, LAMETA, Universtiy of Montpellier, revised 2010.
  11. repec:dgr:uvatin:2009098 is not listed on IDEAS

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