Suchergebnisse

We investigate a novel dynamic choice problem in an experiment where emotions are measured through self‐reports. The choice problem concerns the investment of an amount of money in a safe option and a risky option when there is a 'global risk' of losing all earnings, from both options, including any return from the risky option. Our key finding is that global risk canreducethe amount invested in the risky option. This result cannot be explained by Expected Utility or by its main contenders, Rank‐Dependent Utility and Cumulative Prospect Theory. An explanation is offered by taking account of emotions, using the emotion data from the experiment and recent psychological findings.

This paper experimentally investigates investment behavior.We find that global risk – i.e. risk independent of an agent'sinvestment decision (like political risk) – substantiallydecreases investment. Also effort to obtain the capital usedfor investment decreases investment substantially. Theseresults are neither in line with expected utility theory norwith psychologically orientated theories of decision makingunder risk (e.g. prospect theory or regret theory). We discussthe economic relevance of the results and offer anexplanation that takes the role of experienced emotions(measured with self-reports) and anticipated emotions intoaccount. In addition, an (alternative) emotion-basedexplanation is provided for related experimental findingsconcerning the common ratio effect.