In the Mood for Risk? A Random-Assignment Experiment Addressing the Effects of Moods on Risk Preferences

Recent discussions in decision sciences and behavioral economics stress the potential impact of affect on decision outcomes. In the present study, we conducted random-assignment experiments (N = 253) to investigate whether affect can cause temporary fluctuations in risk preferences. In particular, we employed film clips to vary the valence (positive / negative) and arousal level (low / high) of the affective states of student participants; following this, we elicited and observed risk preferences by asking the participants to make choices among different lotteries. The financial consequences of the lottery choices varied randomly among the fixed, low-, and high-stakes treatment groups. Our results suggest that the impact of affect on risk preferences depends on the magnitude of the financial stakes. Specifically, we find that sadness induces risk aversion but only if the financial stakes are fixed or low. We find no evidence that affect influences risk preferences under high-stakes treatments. The observed sensitivity to variations in the financial incentives in our study reinforces the value of incentive-compatible study designs.