Negative Tail Events, Emotions and Risk Taking

In: The economic journal: the journal of the Royal Economic Society, Band 134, Heft 658, S. 538-578

Abstract

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.