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The role of emotions on risk aversion: A Prospect Theory experiment

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  • Campos-Vazquez, Raymundo M.
  • Cuilty, Emilio

Abstract

This study measures risk and loss aversion using Prospect Theory and examines the impact of emotions on these parameters. Students’ emotions were manipulated using information on rising deaths due to drug violence in Mexico and youth unemployment and Tanaka et al. (2010) methodology was employed to elicit PT parameters. We find that risk aversion increases with sadness while loss aversion is negatively influenced by anger. On average, anger reduces loss aversion by half.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:soceco:v:50:y:2014:i:c:p:1-9
    DOI: 10.1016/j.socec.2014.01.001
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    More about this item

    Keywords

    Risk aversion; Emotions; Prospect Theory; Experiment; Mexico;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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