On the Psychology of the Relation between Optimism and Risk Taking

Thomas Dohmen, Simone Quercia and Jana Willrodt ()
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Jana Willrodt: Duesseldorf Institute for Competition Economics (DICE), Universitaetsstrasse 1, 40225 Duesseldorf, Germany

No 223, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

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 risk taking 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 studywe 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: 47 pages
Date: 2023-03
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Citations: View citations in EconPapers (1)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_223_2023.pdf First version, 2023 (application/pdf)

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 (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:223

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