The Influence of Fear in Decisions: Experimental Evidence
45 Pages Posted: 4 Feb 2010
Date Written: December 3, 2009
This article studies decisions made under conditions of fear, when a catastrophic outcome is introduced in a lottery. It reports on experimental results and seeks to compare the predictions of the expected utility (EU) framework with those of a new axiomatic treatment of choice under uncertainty that takes explicit account of emotions such as fear (Chichilnisky, 1996, 2000, 2002). Results provide evidence that fear influences the cognitive process of decision-making by leading some subjects to focus excessively on catastrophic events. Such heterogeneity in subjects’ behavior, while not consistent with EU-based functions, is fully consistent with the new type of utility function implied by the new axioms.
Keywords: decision under risk, losses, catastrophic event, fear, probability weighting
JEL Classification: C91, D81
Suggested Citation: Suggested Citation