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The Role of Emotions on Risk Preferences: An Experimental Analysis

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Author Info

  • Anna Conte

    ()
    (Westminster Business School, University of Westminster, London, and Strategic Interaction Group, Max Planck Institute of Economics, Jena)

  • M. Vittoria Levati

    ()
    (Strategic Interaction Group, Max Planck Institute of Economics, Jena, and Department of Economics, University of Verona)

  • Chiara Nardi

    ()
    (Department of Economics, University of Verona)

Abstract

In the last decades, there has been a large volume of research showing that emotions do have relevant effects on decision-making. We contribute to this literature by experimentally investigating the impact of four specific emotional states - joviality, sadness, fear, and anger - on risk attitudes. In order to do so, we fit two models of behaviour under risk: the Expected Utility model (EU) and the Rank Dependent Expected Utility model (RDEU), assuming several functional forms of the weighting function. Our results indicate that all emotional states instigate risk-seeking behaviour. Furthermore, we show that there are some differences across gender and across participants' experience in lab experiments.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2013-046.

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Date of creation: 29 Oct 2013
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Handle: RePEc:jrp:jrpwrp:2013-046

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Keywords: Risk aversion; Emotions; Structural models;

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  1. Steffen Andersen & Glenn Harrison & Morten Lau & E. Rutström, 2006. "Elicitation using multiple price list formats," Experimental Economics, Springer, vol. 9(4), pages 383-405, December.
  2. Drichoutis, Andreas & Nayga, Rodolfo, 2010. "Eliciting risk and time preferences under induced mood states," MPRA Paper 33013, University Library of Munich, Germany, revised 27 Aug 2011.
  3. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
  4. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, October.
  5. John Hey, 2001. "Does Repetition Improve Consistency?," Experimental Economics, Springer, vol. 4(1), pages 5-54, June.
  6. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  7. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  8. George Loewenstein, 2000. "Emotions in Economic Theory and Economic Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 426-432, May.
  9. Kliger, Doron & Levy, Ori, 2003. "Mood-induced variation in risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 52(4), pages 573-584, December.
  10. Diecidue, Enrico & Wakker, Peter P, 2001. " On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 281-98, November.
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Cited by:
  1. Tim Friehe & Hannah Schildberg-Hörisch, 2014. "Crime and Self-Control Revisited: Disentangling the Effect of Self-Control on Risk and Social Preferences," CESifo Working Paper Series 4747, CESifo Group Munich.

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