The role of emotions on risk aversion: a prospect theory experiment

Raymundo Campos-Vazquez and Emilio Cuilty ()
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Emilio Cuilty: El Colegio de Mexico

Serie documentos de trabajo del Centro de Estudios Económicos from El Colegio de México, Centro de Estudios Económicos

Abstract: This study measures risk and loss aversion using Prospect Theory and the impact of emotions on those parameters. Our controlled experiment at two universities in Mexico City, using uncompensated students as research subjects, found results similar to those obtained by Tanaka et al. (2010). In order to study the role of emotions, we provided subjects with randomly varied information on rising deaths due to drug violence in Mexico and also on youth unemployment. In agreement with previous studies, we find that risk aversion on the gains domain decreases with age and income. We also find that loss aversion decreases with income and is less for students in public universities. With regard to emotions, risk aversion increases with sadness and loss aversion is negatively influenced by anger. On the loss domain, anger dominates sadness. On average, anger reduces loss aversion by half.

Keywords: risk aversion; emotions; prospect theory; experiment; Mexico (search for similar items in EconPapers)
JEL-codes: C93 D03 D12 O12 O54 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The role of emotions on risk aversion: A Prospect Theory experiment (2014)
Working Paper: The Role of Emotions on Risk Aversion: A prospect theory experiment (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:emx:ceedoc:2013-05

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