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Risk and rationality: The effects of mood and decision rules on probability weighting

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  • Fehr-Duda, Helga
  • Epper, Thomas
  • Bruhin, Adrian
  • Schubert, Renate

Abstract

Empirical research has shown that people tend to overweight small probabilities and underweight large probabilities when valuing risky prospects, but little is known about factors influencing the shape of the probability weighting curve. Based on a laboratory experiment with monetary incentives, we demonstrate that pre-existing good mood is significantly associated with women’s probability weights: Women in a better than normal mood tend to weight probabilities relatively more optimistically. Many men, however, seem to be immunized against effects of incidental mood by applying a mechanical decision criterion such as maximization of expected value.

Suggested Citation

  • Fehr-Duda, Helga & Epper, Thomas & Bruhin, Adrian & Schubert, Renate, 2011. "Risk and rationality: The effects of mood and decision rules on probability weighting," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1), pages 14-24.
    • Handle: RePEc:eee:jeborg:v:78:y:2011:i:1:p:14-24
    DOI: 10.1016/j.jebo.2010.12.004
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    More about this item

    Keywords

    Probability weighting function; Risk taking behavior; Incidental emotions; Rationality; Gender differences;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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