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Investment, Resolution of Risk, and the Role of Affect

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  • Hopfensitz, Astrid
  • Krawczyk, Michal
  • Van Winden, Frans

Abstract

This experimental study is concerned with the impact of the timing of the resolution of risk on investment behavior, with a special focus on the role of affect. In a between-subjects design we observe the impact of a substantial delay of risk resolution (2 days) on investment choices. Besides the resolution timing all other factors, including the timing of payout, are held constant across treatments. In addition, state-of-the-art experimental techniques from experimental economics and psychology are used for eliciting preferences and to explicitly measure emotions and personality traits. Participants put their own money at stake. Our main finding is that the timing of the resolution of risk matters for investment, modulated by the probability of investment success. Emotions are found to play a significant role in this respect and explain our main finding. Our results support recent models of decision making under risk trying to incorporate anticipatory emotions but also uncover some important shortcomings related to the dynamics of emotions.

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Bibliographic Info

Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 09-123.

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Date of creation: Nov 2009
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Handle: RePEc:tse:wpaper:22246

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Keywords: investment decision; delayed resolution of risk; emotions;

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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. van Winden, Frans & Krawczyk, Michal & Hopfensitz, Astrid, 2011. "Investment, resolution of risk, and the role of affect," Journal of Economic Psychology, Elsevier, vol. 32(6), pages 918-939.
  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. M Drouvelis & R Metcalfe & N Powdthavee, 2010. "Priming Cooperation in Social Dilemma Games," Discussion Papers 10/07, Department of Economics, University of York.
  5. Anna Conte & M. Vittoria Levati & Chiara Nardi, 2013. "The Role of Emotions on Risk Preferences: An Experimental Analysis," Jena Economic Research Papers 2013-046, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  6. 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.
  7. Martin Kocher & Michal Krawczyk & Frans van Winden, 2009. "'Let me dream on!' Anticipatory Emotions and Preference for Timing in Lotteries," Tinbergen Institute Discussion Papers 09-098/1, Tinbergen Institute.
  8. Jérémy Celse, 2010. "Envy in Othello. Can effort explain such a tragic issue?," Working Papers 10-23, LAMETA, Universtiy of Montpellier, revised 2010.
  9. 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.
  10. Humphreys, Brad & Paul, Rodney & Weinbach, Andrew, 2010. "Consumption Benefits and Gambling: Evidence From the NCAA Basketball Betting Market," Working Papers 2010-7, University of Alberta, Department of Economics.
  11. 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.

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