Sadder But Wiser: The Effects of Affective States and Weather on Ambiguity Attitudes

Tinbergen Institute Discussion Paper 14-044/I

38 Pages Posted: 2 Apr 2014  

Aurelien Baillon

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Philipp Koellinger

University of Amsterdam

Theresa Treffers

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences

Date Written: March 31, 2014

Abstract

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 real-world phenomena such as financial markets that react to regular fluctuations in weather conditions.

Keywords: Ambiguity attitude, affect, joy, fear, sadness, weather, experiment

JEL Classification: D03, D81

Suggested Citation

Baillon, Aurelien and Koellinger, Philipp and Treffers, Theresa, Sadder But Wiser: The Effects of Affective States and Weather on Ambiguity Attitudes (March 31, 2014). Tinbergen Institute Discussion Paper 14-044/I. Available at SSRN: https://ssrn.com/abstract=2418946 or http://dx.doi.org/10.2139/ssrn.2418946

Aurelien Baillon (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Philipp Koellinger

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Theresa Treffers

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences ( email )

Den Dolech 2
Eindhoven
Netherlands

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