Many important decisions are made without precise information about the probabilities of the outcomes. In such situations, individual ambiguity attitudes influence decision making. The present study identifies affective states as a transient cause of ambiguity attitudes. We conducted two random-assignment, incentive-compatible laboratory experiments, varying subjects’ affective states. We find 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 may help explain re al-world phenomena such as financial markets that react to regular fluctuations in weather conditions.
# 14-044/I (2014-04-01)
- Aurélien Baillon, Erasmus University Rotterdam; Philipp Koellinger, University of Amsterdam; Theresa Treffers, Technical University Eindhoven
- Ambiguity attitude, affect, joy, fear, sadness, weather, experiment.
- JEL codes:
- D03, D81