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Dynamic Choice, Independence and Emotions

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Abstract

From the viewpoint of the independence axiom of expected utility theory, an interesting empirical dynamic choice problem involves the presence of a “global risk,” that is, a chance of losing everything whichever safe or risky option is chosen. In this experimental study, participants have to allocate real money between a safe and a risky project. Treatment variable is the particular decision stage at which a global risk is resolved: (i) before the investment decision; (ii) after the investment decision, but before the resolution of the decision risk; (iii) after the resolution of the decision risk. The baseline treatment is without global risk. Our goal is to investigate the isolation effect and the principle of timing independence under the different timing options of the global risk. In addition, we examine the role played by anticipated and experienced emotions in the choice problem. Main findings are a violation of the isolation effect, and support for the principle of timing independence. Although behavior across the different global risk cases shows similarities, we observe clear differences in people’s affective responses. This may be responsible for the conflicting results observed in earlier experiments. Dependent on the timing of the global risk different combinations of anticipated and experienced emotions influence decision making.

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Authors and Affiliations

  1. CISA – Swiss Center for Affective Sciences, University of Geneva, Rue des Battoirs 7, 1205, Geneva, Switzerland

    Astrid Hopfensitz

  2. CREED, Department of Economics, University of Amsterdam, Roetersstraat 11, 1018 WB, Amsterdam, The Netherlands

    Frans Van Winden

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  1. Astrid Hopfensitz
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  2. Frans Van Winden
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Correspondence to Astrid Hopfensitz.

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Hopfensitz, A., Van Winden, F. Dynamic Choice, Independence and Emotions. Theor Decis 64, 249–300 (2008). https://doi.org/10.1007/s11238-007-9058-y

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  • DOI: https://doi.org/10.1007/s11238-007-9058-y

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