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Risk adaptation and emotion differentiation: An experimental study of dynamic decision-making

Author

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  • Yan Li

    (Beijing Institute of Technology)

  • Neal M. Ashkanasy

    (University of Queensland)

Abstract

We report a study of risky decision-making in a dynamic risk environment, looking in particular at idea that variations in risk preferences over time are subject to both risk adaptation and ability to differentiate negative emotions. In a between-group experiment, 175 participants completed 20 binary project investment decisions under three objective probabilities of success conditions (20%, 50%, and 80%). The results showed that participants’ risk-taking increased at Time 2 only when risky projects have a medium-to-high chance of success (50% or 80%) at Time 1. We also found that participants who could differentiate their negative emotions under the condition with high favorability of risk-taking (80%), achieved higher returns, suggesting that negative emotion differentiation provides emotional information to capture the pattern of decision trials in the environment more favorable to risk-taking success. We conclude with a discussion of the theoretical and practical contributions of our findings for individuals and firms.

Suggested Citation

  • Yan Li & Neal M. Ashkanasy, 2019. "Risk adaptation and emotion differentiation: An experimental study of dynamic decision-making," Asia Pacific Journal of Management, Springer, vol. 36(1), pages 219-243, March.
    • Handle: RePEc:kap:asiapa:v:36:y:2019:i:1:d:10.1007_s10490-017-9559-3
    DOI: 10.1007/s10490-017-9559-3
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