The role of potential loss in the influence of affect on risk-taking behavior |
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| Institution: | 1. ICMA Centre, Henley Business School, UK;2. John Madejski Centre for Reputation, Henley Business School, UK;1. Division of Interventional Radiology, Department of Radiology, University of Illinois at Chicago, Chicago, IL, USA;2. Division of Interventional Radiology, Department of Radiology and Biomedical Imaging, University of California, San Francisco, CA, USA;1. University of Northumbria at Newcastle, UK;2. Macroeconomic Research Center, Financial Research Institute of the Ministry of Finance, Russia |
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| Abstract: | In three experiments the influence of positive affect on risk-taking behavior was examined. In Experiment 1 subjects who received a free gift of candy, compared to those in a control group, were willing to pay increasingly more for lottery tickets as the prize rose from $10 to $90 and as the probability of winning rose from .10 to .90. In Experiment 2 subjects who received a free gift of candy, compared to those in a control group, were willing to pay more to buy insurance against loss, and were particularly more likely to do so when the potential loss was large. A third study, which found that subjects who received a free gift of candy were not willing to pay more for an item than were control subjects, led us to conclude that the results of the first two experiments are not best interpreted as merely due to a general increase in the willingness to spend as a consequence of having received a gift. Instead it was concluded that positive feelings can foster both risk-prone behavior (Experiment 1) and risk-averse behavior (Experiment 2). When a positive-affect subject faces a risk situation in which the potential loss is emphasized, the subject demonstrates risk aversion; when the potential loss is minimized, then risk proneness is observed. |
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