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On the Psychology of the Relation between Optimism and Risk Taking

Author

Listed:
  • Dohmen, Thomas

    (University of Bonn)

  • Quercia, Simone

    (University of Verona)

  • Willrodt, Jana

    (Düsseldorf Institute for Competition Economics (DICE))

Abstract

In this paper, we provide an explanation for why risk taking is related to optimism. Using a laboratory experiment, we show that the degree of optimism predicts whether people tend to focus on the positive or negative outcomes of risky decisions. While optimists tend to focus on the good outcomes, pessimists focus on the bad outcomes of risk. The tendency to focus on good or bad outcomes of risk in turn affects both the self-reported willingness to take risk and actual risktaking behavior. This suggests that dispositional optimism may affect risk taking mainly by shifting attention to specific outcomes rather than causing misperception of probabilities. In line with this, in a second study we find evidence that dispositional optimism is related to elicited parameters of rank dependent utility theory suggesting that focusing may be among the psychological determinants of decision weights. Finally, we corroborate our findings with process data related to focusing showing that optimists tend to remember more and attend more to good outcomes and this in turn affects their risk taking.

Suggested Citation

  • Dohmen, Thomas & Quercia, Simone & Willrodt, Jana, 2022. "On the Psychology of the Relation between Optimism and Risk Taking," IZA Discussion Papers 15763, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp15763
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    Cited by:

    1. Susan Chilton & Darren Duxbury & Irene Mussio & Jytte Seested Nielsen & Smriti Sharma, 2024. "A double-bounded risk-risk trade-off analysis of heatwave-related mortality risk: Evidence from India," Journal of Risk and Uncertainty, Springer, vol. 68(1), pages 1-23, February.
    2. Mario Lackner & Hendrik Sonnabend, 2025. "Positive Feedback Shapes Gender Gaps in Adolescent RiskTaking – Causal Evidence from Real-Risk Competitions," Economics working papers 2025-10, Department of Economics, Johannes Kepler University Linz, Austria.
    3. Linda Thunström & Andrea Mannberg & Benjamin Gilbert & George Loewenstein, 2025. "(Dis)satisfaction with risk preferences," Journal of Risk and Uncertainty, Springer, vol. 70(1), pages 29-64, February.
    4. Christian König-Kersting & Stefan T. Trautmann, 2025. "Grit, discounting, & time inconsistency," Journal of Risk and Uncertainty, Springer, vol. 70(3), pages 201-223, June.
    5. Thomas Dohmen & Simone Quercia & Jana Willrodt, 2023. "On the psychology of the relation between optimism and risk taking," Journal of Risk and Uncertainty, Springer, vol. 67(2), pages 193-214, October.

    More about this item

    Keywords

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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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