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The effect of anger and anxiety traits on investment decisions

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  • Gambetti, Elisa
  • Giusberti, Fiorella

Abstract

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.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:joepsy:v:33:y:2012:i:6:p:1059-1069
    DOI: 10.1016/j.joep.2012.07.001
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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, vol. 95(2), pages 352-359, May.
    4. 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, April.
    5. Kuhnen, Camelia M. & Knutson, Brian, 2011. "The Influence of Affect on Beliefs, Preferences, and Financial Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(03), pages 605-626, June.
    6. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
    7. Elisa Gambetti & Fiorella Giusberti, 2009. "Dispositional anger and risk decision-making," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 8(1), pages 7-20, June.
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    Cited by:

    1. Ivo Bischoff & Özcan Ihtiyar, 2015. "Feedback and Emotions in the Trust Game," MAGKS Papers on Economics 201503, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Robert Gillanders, 2016. "Corruption and anxiety in Sub-Saharan Africa," Economics of Governance, Springer, vol. 17(1), pages 47-69, February.
    3. Elisa Gambetti & Fiorella Giusberti, 2014. "The role of anxiety and anger traits in financial field," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 13(2), pages 271-284, November.
    4. Delis, Manthos D. & Mylonidis, Nikolaos, 2015. "Trust, happiness, and households’ financial decisions," Journal of Financial Stability, Elsevier, vol. 20(C), pages 82-92.
    5. Campos-Vazquez, Raymundo M. & Cuilty, Emilio, 2014. "The role of emotions on risk aversion: A Prospect Theory experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 50(C), pages 1-9.
    6. Tsui-Yii Shih & Sheng-Chen Ke, 2014. "Determinates of financial behavior: insights into consumer money attitudes and financial literacy," Service Business, Springer;Pan-Pacific Business Association, vol. 8(2), pages 217-238, June.

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