Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-52373
Fehr-Duda, Helga; Epper, Thomas; Bruhin, Adrian; Schubert, Renate (2007). Risk and Rationality: The Effect of Incidental Mood on Probability Weighting. Working paper series / Socioeconomic Institute No. 703, University of Zurich.
When valuing risky prospects, people tend to overweight small probabilities and to underweight large probabilities. Nonlinear probability weighting has proven to be a robust empirical phenomenon and has been integrated in decision models, such as cumulative prospect theory. Based on a laboratory experiment with real monetary incentives, we show that incidental emotional states, such as preexisting good mood, have a significant effect on the shape of the probability weighting function, albeit only for women. Women in a better than normal mood tend to exhibit mood-congruent behavior, i.e. they weight probabilities of gains and losses relatively more optimistically. Men’s probability weights are not responsive to mood state. We find that the application of a mechanical decision criterion, such as the maximization of expected value, immunizes men against effects of incidental emotions. 40% of the male participants indeed report applying expected values as decision criterion. Only a negligible number of women do so.
|Item Type:||Working Paper|
|Communities & Collections:||03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
|JEL Classification:||D81, C91|
|Deposited On:||29 Nov 2011 22:47|
|Last Modified:||09 Jul 2012 05:04|
|Series Name:||Working paper series / Socioeconomic Institute|
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