Investment, resolution of risk, and the role of affect

Frans van Winden (), Michal Krawczyk and Astrid Hopfensitz

Journal of Economic Psychology, 2011, vol. 32, issue 6, 918-939

Abstract: This experimental study is concerned with the impact of the timing of the resolution of risk on investment behavior, with a special focus on the role of affect. In a between-subjects design, we observe the impact of a substantial delay of risk resolution (2days) on investment choices. Besides the resolution timing all other factors, including the timing of payout, are held constant across treatments. In addition, state-of-the-art experimental techniques from experimental economics and psychology are used for eliciting preferences and to explicitly measure emotions and personality traits. Participants put their own money at stake. Our main finding is that the timing of the resolution of risk matters for investment, modulated by the probability of investment success. Emotions are found to play a significant role in this respect and explain our main finding. Our results support recent models of decision making under risk trying to incorporate anticipatory emotions but also uncover some important shortcomings related to the dynamics of emotions.

Keywords: Investment decision; Delayed resolution of risk; Emotions; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 G11 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (27)

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Related works:
Working Paper: Investment, Resolution of Risk, and the Role of Affect (2010)
Working Paper: Investment, Resolution of Risk, and the Role of Affect (2009)
Working Paper: Investment, Resolution of Risk, and the Role of Affect (2008)
Working Paper: Investment, Resolution of Risk, and the Role of Affect (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:32:y:2011:i:6:p:918-939

DOI: 10.1016/j.joep.2011.07.007

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