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Negative Tail Events, Emotions & Risk Taking

Author

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  • Brice Corgnet

    (Univ Lyon, emlyon business school, GATE UMR 5824, F-69130 Ecully, France)

  • Camille Cornand

    (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France)

  • Nobuyuki Hanaki

    (Institute for Social and Economic Research, Osaka University)

Abstract

We design a novel experiment to assess investors’ behavioural and physiological reactions to negative tail events. Investors who observed, without suffering from, tail events decreased their bids whereas investors suffering tail losses increased them. However, the increase in bids after tail losses was not observed for those who exhibited no emotional arousal. This suggests that emotions are key in explaining Prospect Theory prediction of risk seeking in the loss domain.

Suggested Citation

  • Brice Corgnet & Camille Cornand & Nobuyuki Hanaki, 2020. "Negative Tail Events, Emotions & Risk Taking," Working Papers 2016, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    • Handle: RePEc:gat:wpaper:2016
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    Cited by:

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    6. Brice Corgnet & Camille Cornand & Nobuyuki Hanaki, 2021. "Risk-Taking and Tail Events Across Trading Institutions," Working Papers halshs-03357898, HAL.
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    More about this item

    Keywords

    tail events; emotions and risk;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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