In the Mood for Risk? An Experiment Addressing the Effects of Moods on Risk Preferences
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We investigate the hypothesis that moods can cause temporary fluctuations in risk preferences. In particular, we conduct an economic experiment that first uses standard psychological tools to manipulate individuals’ moods with film clips that induce joy, fear, or sadness and then measures the risk preferences of these individuals and compares these preferences to the preferences of a control group that did not receive a mood induction. Our experiment uses a choice-based measure of risk preferences in the win domain and differentiates among nonexistent, low, and very high financial stakes. We find evidence that sad moods induce risk aversion, although this phenomenon only occurs if the financial stakes are absent or low. We do not find evidence that moods influence risk preferences under high-stakes conditions. The observed sensitivity to variations in the financial incentives in our study reinforces the value of incentive-compatible study designs.
- D81 : Criteria for Decision-Making under Risk and Uncertainty
- D03 : Behavioral Economics; Underlying Principles
- risk preferences
- mood induction