Emotions-at-Risk: An Experimental Investigation into Emotions, Option Prices and Risk Perception

Roman Kräussl, Ronald Bosman and Thomas van Galen
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Thomas van Galen: LSF

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: This paper experimentally investigates how emotions are associated with option prices and risk perception. Using a binary lottery, we find evidence that the emotion ‘surprise’ plays a significant role in the negative correlation between lottery returns and estimates of the price of a put option. Our findings shed new light on various existing theories on emotions and affect. We find gratitude, admiration, and joy to be positively associated with risk perception, although the affect heuristic predicts a negative association. In contrast with the predictions of the appraisal tendency framework (ATF), we document a negative correlation between option price and surprise for lottery winners. Finally, the results show that the option price is not associated with risk perception as commonly used in psychology.

Keywords: Risk perception; emotions; affect heuristic; option prices; experiment (search for similar items in EconPapers)
JEL-codes: D03 D81 G17 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-neu
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Citations: View citations in EconPapers (1)

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Working Paper: Emotions-at-risk: An experimental investigation into emotions, option prices and risk perception (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:14-11

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