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The effect of anger and anxiety traits on investment decisions

  • Gambetti, Elisa
  • Giusberti, Fiorella
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    This study investigates the extent to which people make financial decisions on the basis of their dispositional tendency to engage in a specific emotion, such as anger or anxiety. We predicted that trait anger is associated with the decision to invest, whereas trait anxiety motivates individuals to avoid investments. We employed a six question survey, considering real life investment decisions, stock trend predictability and preference toward risk investments, and three hypothetic scenarios to measure the participants’ risk attitudes in the area of finance. The results showed that trait anger predicted risky decisions: it was positively associated with the willingness to invest money in different kinds of stocks, preferring medium/long-term investments, and with high predictability assessment in the forecast of stock trends. Contrarily, trait anxiety predicted conservative financial decisions: it was associated with the decision not to invest savings, to hold interest-bearing accounts, and with low predictability of stock trends. In hypothetic scenarios trait anger predicted a medium risk portfolio and the decision to wait before selling both loss and gain investments, while trait anxiety was associated with the preference for a low risk portfolio and with the decision to immediately sell a stock both if it increases or decreases in value. These data are consistent with cognitive models of emotions, highlighting their functional utility and extend the knowledge of the relationship between personality traits and real life investment decision-making.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167487012000700
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    Article provided by Elsevier in its journal Journal of Economic Psychology.

    Volume (Year): 33 (2012)
    Issue (Month): 6 ()
    Pages: 1059-1069

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    Handle: RePEc:eee:joepsy:v:33:y:2012:i:6:p:1059-1069
    Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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    1. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
    2. Hopfensitz, Astrid & Krawczyk, Michal & Van Winden, Frans, 2009. "Investment, Resolution of Risk, and the Role of Affect," TSE Working Papers 09-123, Toulouse School of Economics (TSE).
    3. Raghunathan, Rajagopal & Pham, Michel Tuan, 1999. "All Negative Moods Are Not Equal: Motivational Influences of Anxiety and Sadness on Decision Making, , , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 79(1), pages 56-77, July.
    4. Kuhnen, Camelia & Knutson, Brian, 2008. "The Influence of Affect on Beliefs, Preferences and Financial Decisions," MPRA Paper 10410, University Library of Munich, Germany.
    5. Elisa Gambetti & Fiorella Giusberti, 2009. "Dispositional anger and risk decision-making," Mind and Society: Cognitive Studies in Economics and Social Sciences, Fondazione Rosselli, vol. 8(1), pages 7-20, June.
    6. Andrew W. Lo & Dmitry V. Repin & Brett N. Steenbarger, 2005. "Fear and Greed in Financial Markets: A Clinical Study of Day-Traders," NBER Working Papers 11243, National Bureau of Economic Research, Inc.
    7. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
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