Advanced Search
MyIDEAS: Login to save this paper or follow this series

Investment, Resolution of Risk, and the Role of Affect

Contents:

Author Info

  • Frans van Winden

    ()
    (University of Amsterdam, CEPR, CESifo)

  • Michal Krawczyk

    ()
    (University of Amsterdam)

  • Astrid Hopfensitz

    (TSE (GREMAQ), University of Toulouse)

Abstract

This discussion paper has resulted in a publication in the 'Journal of Economic Psychology' 32(6) 918-39. This experimental study is concerned with the impact of the timing of the resolution of risk onpeople's willingness to take risks, with a special focus on the role of affect. While the importanceof anticipatory emotions has so far been only inferred from decisions regarding hypothetical choiceproblems, 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 waitingperiod under delayed resolution (which involved two days). Affective traits and risk attitudes weremeasured through a web-based questionnaire before the experiment and participants' preferencesfor 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 riskinvolved, and that (among all the measures considered) only emotions can explain our results,albeit in ways that are not captured by existing models.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://papers.tinbergen.nl/08047.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-047/1.

as in new window
Length:
Date of creation: 15 May 2008
Date of revision:
Handle: RePEc:dgr:uvatin:20080047

Contact details of provider:
Web page: http://www.tinbergen.nl

Related research

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

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. DREZE, Jacques H. & MODIGLIANI, Franco, . "Cosumption decisions under uncertainty," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. David M Kreps & Evan L Porteus, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Levine's Working Paper Archive 625018000000000009, David K. Levine.
  3. van Winden, Frans & Krawczyk, Michal & Hopfensitz, Astrid, 2011. "Investment, resolution of risk, and the role of affect," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(6), pages 918-939.
  4. Bernard M.S. van Praag & Adam S. Booij, 2003. "Risk Aversion and the Subjective Time Discount Rate: A Joint Approach," CESifo Working Paper Series 923, CESifo Group Munich.
  5. Spence, Michael & Zeckhauser, Richard J, 1972. "The Effect of the Timing of Consumption Decisions and the Resolution of Lotteries on the Choice of Lotteries," Econometrica, Econometric Society, Econometric Society, vol. 40(2), pages 401-03, March.
  6. Mohammed Abdellaoui & Han Bleichrodt & Corina Paraschiv, 2007. "Loss Aversion Under Prospect Theory: A Parameter-Free Measurement," Management Science, INFORMS, INFORMS, vol. 53(10), pages 1659-1674, October.
  7. Dohmen Thomas & Falk Armin & Huffman David & Sunde Uwe & Schupp Jürgen & Wagner Gert, 2009. "Individual Risk Attitudes: Measurement, Determinants and Behavioral Consequences," ROA Research Memorandum, Maastricht University, Research Centre for Education and the Labour Market (ROA) 007, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  8. Cubitt, Robin P & Sugden, Robert, 2001. " Dynamic Decision-Making under Uncertainty: An Experimental Investigation of Choices between Accumulator Gambles," Journal of Risk and Uncertainty, Springer, Springer, vol. 22(2), pages 103-28, March.
  9. Loomes, Graham & Sugden, Robert, 1986. "Disappointment and Dynamic Consistency in Choice under Uncertainty," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(2), pages 271-82, April.
  10. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jurgen Schupp & Gert Wagner, 2005. "Individual risk attitudes: New evidence from a large, representative, experimentally-validated survey," Framed Field Experiments, The Field Experiments Website 00140, The Field Experiments Website.
  11. Camelia Kuhnen & Brian Knutson, 2005. "The Neural Basis of Financial Risk Taking," Experimental, EconWPA 0509001, EconWPA.
  12. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, Springer, vol. 5(4), pages 297-323, October.
  13. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
  14. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(387), pages 666-84, September.
  15. Martin Kocher & Michal Krawczyk & Frans van Winden, 2009. "'Let me dream on!' Anticipatory Emotions and Preference for Timing in Lotteries," Tinbergen Institute Discussion Papers, Tinbergen Institute 09-098/1, Tinbergen Institute.
  16. Chew, Soo Hong & Ho, Joanna L, 1994. "Hope: An Empirical Study of Attitude toward the Timing of Uncertainty Resolution," Journal of Risk and Uncertainty, Springer, Springer, vol. 8(3), pages 267-88, May.
  17. Loewenstein, George, 1996. "Out of Control: Visceral Influences on Behavior," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 65(3), pages 272-292, March.
  18. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  19. Andrew W. Lo & Dmitry V. Repin & Brett N. Steenbarger, 2005. "Fear and Greed in Financial Markets: A Clinical Study of Day-Traders," American Economic Review, American Economic Association, American Economic Association, vol. 95(2), pages 352-359, May.
  20. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, Econometric Society, vol. 76(3), pages 583-618, 05.
  21. Hoel, Michael & Iversen, Tor & Nilssen, Tore & Vislie, Jon, 2006. "Genetic testing in competitive insurance markets with repulsion from chance: A welfare analysis," Journal of Health Economics, Elsevier, Elsevier, vol. 25(5), pages 847-860, September.
  22. Isen, Alice M. & Geva, Nehemia, 1987. "The influence of positive affect on acceptable level of risk: The person with a large canoe has a large worry," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 39(2), pages 145-154, April.
  23. Caplin, Andrew & Leahy, John, 1997. "Psychological Expected Utility Theory and Anticipatory Feelings," Working Papers, C.V. Starr Center for Applied Economics, New York University 97-37, C.V. Starr Center for Applied Economics, New York University.
  24. Kfir Eliaz & Andrew Schotter, 2007. "Experimental Testing of Intrinsic Preferences for NonInstrumental Information," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 166-169, May.
  25. Charness, Gary & Levin, Dan, 2003. "When Optimal Choices Feel Wrong: A Laboratory Study of Bayesian Updating, Complexity, and Affect," University of California at Santa Barbara, Economics Working Paper Series qt7g63k28w, Department of Economics, UC Santa Barbara.
  26. Astrid Hopfensitz & Frans van Winden, 2006. "Dynamic Choice, Independence and Emotions," Tinbergen Institute Discussion Papers, Tinbergen Institute 06-087/1, Tinbergen Institute.
  27. Vital Anderhub & Werner Güth & Uri Gneezy & Doron Sonsino, 2001. "On the Interaction of Risk and Time Preferences: An Experimental Study," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 2(3), pages 239-253, 08.
  28. Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers, University of California at Berkeley E00-279, University of California at Berkeley.
  29. Glenn Harrison & Morten Lau & Elisabet Rutstrom, 2004. "Estimating risk attitudes in denmark: A field experiment," Artefactual Field Experiments, The Field Experiments Website 00059, The Field Experiments Website.
  30. Horowitz, John K., 2006. "The Becker-DeGroot-Marschak mechanism is not necessarily incentive compatible, even for non-random goods," Economics Letters, Elsevier, Elsevier, vol. 93(1), pages 6-11, October.
  31. Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 375-405, May.
  32. Roger E. A. Farmer, 2009. "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 85(270), pages 357-358, 09.
  33. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 40(2), pages 351-401, June.
  34. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 97(4), pages 1407-1418, September.
  35. Gilbert, Daniel T. & Gill, Michael J. & Wilson, Timothy D., 2002. "The Future Is Now: Temporal Correction in Affective Forecasting," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 88(1), pages 430-444, May.
  36. Pope, Robin, 2004. "Biases from omitted risk effects in standard gamble utilities," Journal of Health Economics, Elsevier, Elsevier, vol. 23(4), pages 695-735, July.
  37. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer, Springer, vol. 2(2), pages 107-127, December.
  38. David Forrest & Robert Simmons & Neil Chesters, 2002. "Buying a Dream: Alternative Models of Demand for Lotto," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 40(3), pages 485-496, July.
  39. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1644-1655, December.
  40. Birnbaum, Michael H., 2004. "Tests of rank-dependent utility and cumulative prospect theory in gambles represented by natural frequencies: Effects of format, event framing, and branch splitting," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 95(1), pages 40-65, September.
  41. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(368), pages 805-24, December.
  42. Charles Noussair & Ping Wu, 2006. "Risk tolerance in the present and the future: an experimental study," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(6), pages 401-412.
  43. Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency and Heterogeneity of Individual Behavior under Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 97(5), pages 1921-1938, December.
  44. Nigel Nicholson & Emma Soane & Mark Fenton-O'Creevy & Paul Willman, 2005. "Personality and domain-specific risk taking," Journal of Risk Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(2), pages 157-176, March.
  45. Hoch, Stephen J & Loewenstein, George F, 1991. " Time-Inconsistent Preferences and Consumer Self-Control," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 17(4), pages 492-507, March.
  46. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 667-86, May.
  47. George Wu, 1999. "Anxiety and Decision Making with Delayed Resolution of Uncertainty," Theory and Decision, Springer, Springer, vol. 46(2), pages 159-199, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Couture, Stéphane & Reynaud, Arnaud, 2010. "Stability of Risk Preference Measures: Results from a Field Experiment on French Farmers," TSE Working Papers, Toulouse School of Economics (TSE) 10-151, Toulouse School of Economics (TSE).
  2. Anna Conte & M. Vittoria Levati & Chiara Nardi, 2013. "The Role of Emotions on Risk Preferences: An Experimental Analysis," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2013-046, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Cahit Guven, 2009. "Reversing the Question: Does Happiness Affect Consumption and Savings Behavior?," SOEPpapers on Multidisciplinary Panel Data Research 219, DIW Berlin, The German Socio-Economic Panel (SOEP).
  4. Martin Kocher & Michal Krawczyk & Frans van Winden, 2009. "'Let me dream on!' Anticipatory Emotions and Preference for Timing in Lotteries," Tinbergen Institute Discussion Papers, Tinbergen Institute 09-098/1, Tinbergen Institute.
  5. van Winden, Frans & Krawczyk, Michal & Hopfensitz, Astrid, 2011. "Investment, resolution of risk, and the role of affect," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(6), pages 918-939.
  6. Kocher, Martin G. & Krawczyk, Michal & van Winden, Frans, 2014. "'Let me dream on!' Anticipatory emotions and preference for timing in lotteries," Munich Reprints in Economics, University of Munich, Department of Economics 18173, University of Munich, Department of Economics.
  7. M Drouvelis & R Metcalfe & N Powdthavee, 2010. "Priming Cooperation in Social Dilemma Games," Discussion Papers, Department of Economics, University of York 10/07, Department of Economics, University of York.
  8. 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, Elsevier, vol. 39(C), pages 376-386.
  9. 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.
  10. Jérémy Celse, 2010. "Envy in Othello. Can effort explain such a tragic issue?," Working Papers, LAMETA, Universtiy of Montpellier 10-23, LAMETA, Universtiy of Montpellier, revised 2010.
  11. Gambetti, Elisa & Giusberti, Fiorella, 2012. "The effect of anger and anxiety traits on investment decisions," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(6), pages 1059-1069.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dgr:uvatin:20080047. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.