Risk-Taking,Framing Effects,and Affect |
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| Institution: | 1. University of Bonn, Maastricht University, IZA and DIW, Berlin;2. University of Bologna, IZA and DIW, Berlin;3. International School of Economics at Tbilisi State University;1. EIEF, Italy;2. CEPR, UK;3. Northwestern University, USA;4. NBER, USA;5. University of Chicago, USA;1. Federal Reserve Bank of Richmond, United States;2. Federal Reserve Bank of Cleveland, United States;1. Department of Psychology, Tsinghua University, Beijing, China;2. Graduate School at Shenzhen, Tsinghua University, Shenzhen, China |
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| Abstract: | This paper examines the influence of affect′s two primary dimensions, Pleasantness and Arousal, on risk-taking behaviors. In Study 1, higher levels of Arousal led subjects to pay less for insurance to protect themselves from potential losses. In Study 2, a between-subjects design examined willingness-to-pay for statistically equivalent lotteries and insurance. Higher Arousal led to higher risk-seeking expressed as higher willingness-to-pay for lotteries but lower willingness-to-pay for insurance. Higher Negative Affectivity (i.e., Unpleasantness and high Arousal) led to higher willingness-to-pay for insurance for possible losses of substantial value. Also, higher Calmness (i.e., Pleasantness and low Arousal) led to greater willingness-to-pay for lotteries. The results are interpreted in terms of two mechanisms: (i) congruency between Pleasantness and selected risk-taking decision strategy and (ii) Arousal-induced restriction in attentional capacity. |
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