Bosman, R. and van Winden, F. (2010). Global risk, investment and emotions Economica, 77(307):451--471.

Affiliated author

Frans van Winden
Publication year

2010

Journal

Economica

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We investigate a novel dynamic choice problem in an experiment where emotions are measured through self-reports. The choice problem concerns the investment of an amount of money in a safe option and a risky option when there is a {\textquoteleft}global risk{\textquoteright} of losing all earnings, from both options, including any return from the risky option. Our key finding is that global risk can reduce the amount invested in the risky option. This result cannot be explained by Expected Utility or by its main contenders, Rank-Dependent Utility and Cumulative Prospect Theory. An explanation is offered by taking account of emotions, using the emotion data from the experiment and recent psychological findings.