On the Psychology of the Relation between Optimism and Risk Taking

Thomas Dohmen, Simone Quercia and Jana Willrodt ()
Additional contact information
Jana Willrodt: Düsseldorf Institute for Competition Economics (DICE)

No 15763, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper, we provide an explanation for why risk taking is related to optimism. Using a laboratory experiment, we show that the degree of optimism predicts whether people tend to focus on the positive or negative outcomes of risky decisions. While optimists tend to focus on the good outcomes, pessimists focus on the bad outcomes of risk. The tendency to focus on good or bad outcomes of risk in turn affects both the self-reported willingness to take risk and actual risktaking behavior. This suggests that dispositional optimism may affect risk taking mainly by shifting attention to specific outcomes rather than causing misperception of probabilities. In line with this, in a second study we find evidence that dispositional optimism is related to elicited parameters of rank dependent utility theory suggesting that focusing may be among the psychological determinants of decision weights. Finally, we corroborate our findings with process data related to focusing showing that optimists tend to remember more and attend more to good outcomes and this in turn affects their risk taking.

Keywords: risk taking behavior; optimism; preference measure (search for similar items in EconPapers)
JEL-codes: C91 D01 D81 D91 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2022-11
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-rmg and nep-upt
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Citations: View citations in EconPapers (1)

Published - published in: Journal of Risk and Uncertainty, 2023, 67, 193–214.

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Related works:
Journal Article: On the psychology of the relation between optimism and risk taking (2023)
Working Paper: On the Psychology of the Relation between Optimism and Risk Taking (2023)
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