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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Risk and Rationality: The Effect of Incidental Mood on Probability Weighting |
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| Institution | University of Zurich |
| Series Name | Working paper series / Socioeconomic Institute |
| Number | No. 703 |
| Date | 2007 |
| Abstract Text | 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. |
| Official URL | http://www.econ.uzh.ch/wp.html |
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