Sadder but wiser? Mood, overconfidence and uncertainty preferences
Zusammenfassung der Projektergebnisse
This project contributes to the field of behavioural economics by investigating the influence of moods on overconfidence (an important cognitive bias) and on preferences for risk and ambiguity. Our incentive-compatible economic experiments examined how moods influence people's willingness to make risky and ambiguous decisions and their tendency to deviate from rational decision-making. We conducted experiments with naive and experienced subjects (students and entrepreneurs) and with financially low and high stakes. Our results regarding moods and risk preferences suggest that the impact of moods on risk preferences depends on the magnitude of the financial stakes. Specifically, we found that sadness induces risk aversion but only if the financial stakes are fixed or low. We found 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. Our results regarding moods and ambiguity preferences suggest that sadness induces choices that are closer to ambiguity-neutral attitudes compared with the joy, fear, and control groups, where decision makers deviate more from payoff-maximizing behaviors and are more susceptible to likelihood insensitivity. We also find a similar pattern in a representative population sample where cloudy weather conditions on the day of the survey - a proxy for sad affect - correlate with more ambiguity-neutral attitudes. Our results regarding moods and overconfidence show that joy induces overconfidence if the reason for joy (an unexpected gift) is unrelated to the judgment task and if participants were not made specifically aware of our mood manipulation. In contrast, we observed wellcalibrated judgments among participants in a control group who were in their resting mood. Furthermore, we found well-calibrated judgments among participants who received the joyful mood induction together with questions that forced them to reflect on their current mood, its cause, and the (ir)relevance of its cause to our judgment tasks. Our findings suggest that being aware of one's positive mood and the reason for that mood can be an effective short-term remedy for overconfidence. Overall, our findings suggest that random, exogenous fluctuations in people's affective states could influence a broad spectrum of economic behavior through their impact on risk preferences, ambiguity attitudes, and overconfidence, such as financial investments, innovation or market entry. An open question is whether individuals could learn to overcome the temporary preference shocks of their moods or, alternatively, if affect is a necessary component of the human ability to think and behave, with its potentially negative side effects.
Projektbezogene Publikationen (Auswahl)
- (2012): In the mood for risk? An experiment addressing the effects of moods on risk preferences
Treffers, T.; Koellinger, P.D.; Picot, A.
- (2012): The happiness trap, in: Harvard Business Manager. April, 50-52. [German]
Michl, T.; Picot, A.
- (July 2012): In the mood for risk? An experiment on moods and risk preferences, 30th International Congress of Psvchology (ICP). Cape Town, South Africa
Michl, T.; Koellinger, P.D.; Picot, A.
- (June 2012): Joy leads to overconfidence - and a simple remedy, NeuroPsychoEconomics Conference, Rotterdam, the Netherlands
Koellinger, P.D.; Michl, T.
