Dynamic Choice, Independence and Emotions
From the viewpoint of the independence axiom of expected utility theory, an interesting empirical dynamic choice problem involves the presence of a “global risk”, that is, a chance of losing everything whichever safe or risky option is chosen. In this experimental study, participants have to allocate real money between a safe and a risky project. Treatment variable is the particular decision stage at which a global risk is resolved: (i) before the investment decision; (ii) after the investment decision but before the resolution of the investment risk; (iii) after the resolution of the investment risk. The baseline treatment is without global risk. Our goal is to investigate the isolation effect and the principle of timing independence under the different timing options of the global risk. In addition, we examine the role played by anticipated and experienced emotions in the choice problem. Main findings are a violation of the isolation effect, and support for the principle of timing independence. Although behavior across the different global risk cases shows similarities, we observe clear differences in people’s affective responses. This may be responsible for the conflicting results observed in earlier experiments. Dependent on the timing of the global risk different combinations of anticipated and experienced emotions influence decision making.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Bernasconi, Michele, 1994. "Nonlinear Preferences and Two-Stage Lotteries: Theories and Evidence," Economic Journal, Royal Economic Society, vol. 104(422), pages 54-70, January.
- Kirchsteiger, Georg & Rigotti, Luca & Rustichini, Aldo, 2006. "Your morals might be your moods," Journal of Economic Behavior & Organization, Elsevier, vol. 59(2), pages 155-172, February.
- Ernst Fehr & Jean-Robert Tyran, 2004.
"Money illusion and coordination failure,"
University of St. Gallen Department of Economics working paper series 2004
2004-02, Department of Economics, University of St. Gallen.
- Fehr, Ernst & Tyran, Jean-Robert, 2004. "Money Illusion and Coordination Failure," CEPR Discussion Papers 4283, C.E.P.R. Discussion Papers.
- Ernst Fehr & Jean-Robert Tyran, 2004. "Money Illusion and Coordination Failure," CESifo Working Paper Series 1141, CESifo Group Munich.
- Ernst Fehr & Jean-Robert Tyran, . "Money Illusion and Coordination Failure," IEW - Working Papers 177, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Tyran, Jean-Robert, 2004. "Money Illusion and Coordination Failure," IZA Discussion Papers 1013, Institute for the Study of Labor (IZA).
- Bosman, R.A.J & van Winden, Frans A.A.M., 2006.
"Global Risk, Investment and Emotions,"
CEPR Discussion Papers
5451, C.E.P.R. Discussion Papers.
- Cubitt, Robin P & Starmer, Chris & Sugden, Robert, 1998. "Dynamic Choice and the Common Ratio Effect: An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 108(450), pages 1362-80, September.
- Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October.
- Zeelenberg, M. & van Dijk, W.W. & Manstead, A.S.R., 1998. "The experience of regret and disappointment," Other publications TiSEM 57c0c58e-e9a1-49f0-a024-d, Tilburg University, School of Economics and Management.
- Caplin, Andrew & Leahy, John, 1997.
"Psychological Expected Utility Theory and Anticipatory Feelings,"
97-37, C.V. Starr Center for Applied Economics, New York University.
- Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February.
- Conlisk, John, 1989. "Three Variants on the Allais Example," American Economic Review, American Economic Association, vol. 79(3), pages 392-407, June.
- Loomes, Graham & Sugden, Robert, 1986. "Disappointment and Dynamic Consistency in Choice under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 53(2), pages 271-82, April.
- Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
- George Wu, 1999. "Anxiety and Decision Making with Delayed Resolution of Uncertainty," Theory and Decision, Springer, vol. 46(2), pages 159-199, April.
- Peter Wakker & Veronika KÃ¶bberling & Christiane Schwieren, 2007. "Prospect-theoryâ€™s Diminishing Sensitivity Versus Economicsâ€™ Intrinsic Utility of Money: How the Introduction of the Euro can be Used to Disentangle the Two Empirically," Theory and Decision, Springer, vol. 63(3), pages 205-231, November.
- Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
- Kliger, Doron & Levy, Ori, 2003. "Mood-induced variation in risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 52(4), pages 573-584, December.
- repec:ner:tilbur:urn:nbn:nl:ui:12-76942 is not listed on IDEAS
- Chew, Soo Hong & Ho, Joanna L, 1994. "Hope: An Empirical Study of Attitude toward the Timing of Uncertainty Resolution," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 267-88, May.
When requesting a correction, please mention this item's handle: RePEc:kap:theord:v:64:y:2008:i:2:p:249-300. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.