- Sadder but wiser: the effects of affective states and weather on ambiguity attitudes
- Number of pages
- Amsterdam/Rotterdam: Tinbergen Institute
- Tinbergen Institue Discussion Paper
- Volume | Edition (Serie)
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam Business School Research Institute (ABS-RI)
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.
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