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Investment, Resolution of Risk, and the Role of Affect

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  • Frans van Winden

    () (University of Amsterdam)

  • Michal Krawczyk

    () (University of Amsterdam)

  • Astrid Hopfensitz

    (University of Toulouse)

Abstract

This discussion paper has resulted in a publication in the 'Journal of Economic Psychology' 32(6) 918-39. This experimental study is concerned with the impact of the timing of the resolution of risk onpeople's willingness to take risks, with a special focus on the role of affect. While the importanceof anticipatory emotions has so far been only inferred from decisions regarding hypothetical choiceproblems, we had participants put their own money at risk in a real investment task. Moreover,emotions were explicitly measured, including anticipatory emotions experienced during the waitingperiod under delayed resolution (which involved two days). Affective traits and risk attitudes weremeasured through a web-based questionnaire before the experiment and participants' preferencesfor resolution timing, risk, and time were incentive compatibly measured during the experiment.Main findings are that delayed resolution can affect investment, that the effect depends on the riskinvolved, and that (among all the measures considered) only emotions can explain our results,albeit in ways that are not captured by existing models.

Suggested Citation

  • Frans van Winden & Michal Krawczyk & Astrid Hopfensitz, 2008. "Investment, Resolution of Risk, and the Role of Affect," Tinbergen Institute Discussion Papers 08-047/1, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20080047
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    Cited by:

    1. Krawczyk, Michał Wiktor, 2015. "Probability weighting in different domains: The role of affect, fungibility, and stakes," Journal of Economic Psychology, Elsevier, vol. 51(C), pages 1-15.
    2. Humphreys, Brad R. & Paul, Rodney J. & Weinbach, Andrew P., 2013. "Consumption benefits and gambling: Evidence from the NCAA basketball betting market," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 376-386.
    3. Arnaud Reynaud & Stéphane Couture, 2012. "Stability of risk preference measures: results from a field experiment on French farmers," Theory and Decision, Springer, vol. 73(2), pages 203-221, August.
    4. Toke Fosgaard, 2011. "The Emotional Consequences of Pro-social Behavior in Markets," IFRO Working Paper 2012/1, University of Copenhagen, Department of Food and Resource Economics.
    5. Hans-Martin von Gaudecker & Arthur van Soest & Erik Wengstrom, 2011. "Heterogeneity in Risky Choice Behavior in a Broad Population," American Economic Review, American Economic Association, vol. 101(2), pages 664-694, April.
    6. Guven, Cahit, 2012. "Reversing the question: Does happiness affect consumption and savings behavior?," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 701-717.
    7. Yulei Rao & Lixing Mei & Rui Zhu, 2016. "Happiness and Stock-Market Participation: Empirical Evidence from China," Journal of Happiness Studies, Springer, vol. 17(1), pages 271-293, February.
    8. Roman Kräussl & Ronald Bosman & Thomas van Galen, 2014. "Emotions-at-Risk: An Experimental Investigation into Emotions, Option Prices and Risk Perception," LSF Research Working Paper Series 14-11, Luxembourg School of Finance, University of Luxembourg.
    9. Drouvelis, Michalis & Metcalfe, Robert & Powdthavee, Nattavudh, 2010. "Priming Cooperation in Social Dilemma Games," IZA Discussion Papers 4963, Institute for the Study of Labor (IZA).
    10. Falk, Armin & Zimmermann, Florian, 2016. "Beliefs and Utility: Experimental Evidence on Preferences for Information," IZA Discussion Papers 10172, Institute for the Study of Labor (IZA).
    11. repec:ags:gjagec:253146 is not listed on IDEAS
    12. Mußhoff, Oliver & Hirschauer, Norbert & Fahlbusch, Markus, 2014. "An Investigation into the Factors which Determine Farmers’ Acceptance of Supply Contracts: The Ethanol Beet Example," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 63(1).
    13. Anna Conte & M. Vittoria Levati & Chiara Nardi, 2018. "Risk Preferences and the Role of Emotions," Economica, London School of Economics and Political Science, vol. 85(338), pages 305-328, April.
    14. Sebastian Lehmann, 2014. "Toward an Understanding of the BDM: Predictive Validity, Gambling Effects, and Risk Attitude," FEMM Working Papers 150001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    15. Jérémy Celse, 2010. "Envy in Othello. Can effort explain such a tragic issue?," Working Papers 10-23, LAMETA, Universitiy of Montpellier, revised 2010.
    16. 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.
    17. Yulei Rao & Lixing Mei & Rui Zhu, 2016. "Happiness and Stock-Market Participation: Empirical Evidence from China," Journal of Happiness Studies, Springer, vol. 17(1), pages 271-293, February.
    18. Kocher, Martin G. & Krawczyk, Michal & van Winden, Frans, 2014. "‘Let me dream on!’ Anticipatory emotions and preference for timing in lotteries," Journal of Economic Behavior & Organization, Elsevier, vol. 98(C), pages 29-40.
    19. Giorgio Coricelli & Mateus Joffily & Claude Montmarquette & Marie Villeval, 2010. "Cheating, emotions, and rationality: an experiment on tax evasion," Experimental Economics, Springer;Economic Science Association, vol. 13(2), pages 226-247, June.
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    More about this item

    Keywords

    Investment decision; delayed resolution of risk; emotions; experiment;

    JEL classification:

    • 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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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