1. TAMAR KUGLER, LISA ORDÓÑEZ, TERRY CONNOLLY ICSD, AUGUST 2009 Emotion, Decision and Risk: Betting on Gambles vs. Betting on People

2. Decisions Making Involves Powerful Emotions Two ways emotions can affect decisions: 1. Integral emotions can arise from the decision itself  Angry about the salary raise your boss offers you 2. Incidental emotions from other events can spillover to unrelated decisions  Sad jilted lover makes some rash decisions  Wait until a boss/friend/parent is happy to ask for a favor We will investigate how incidental emotions affect subsequent risk-related decisions in social dilemmas

3. Decision Making & Emotions Slow to develop Early work: Valence approach (good vs. bad moods)  Good moods = heuristic processing, more collaboration, lower perceived risks  Bad moods = analytic processing, more competition, higher perceived risks  (Isen & Colleagues; Gasper& Clore; Johnson & Tversky, Slovic & Peters) Notable exception: Appraisal Tendency Framework (ATF) (Lerner & Keltner, 2000, 2001)

4. Appraisal Tendency Framework Draws on cognitive appraisal theories of emotions (Smith & Ellsworth, 1985; Lazarus, 1991) Dimensional structure of emotions (e.g., pleasantness, control, certainty, anticipated effort) Distinct emotions  cognitive appraisal  distinct behavioral tendencies For example…

5. Example Anger: certain and individual control. A demeaning offense occurred with certainty and situation is under control of human agency Fear: uncertain and situational control. A sense that even basic needs such as safety are uncertain and situational factors beyond one’s control shape outcomes Prediction: Fear should increase perceptions of risk and then lead to risk averse choices compared to Anger Findings (Lerner and Keltner 2001): fearful people perceive risk as higher than angry people, and make hypothetical risk averse choices

6. However… Judgments or hypothetical choices only No consequences to choice The source of risk is always in the environment and not in the behavior of other people (lottery risk vs. interactive risk) Interactive risk is the type of risk that is relevant to behavior in Social Dilemmas

7. Our Research Goals 1. Focus on specific, discrete emotions  Fear, anger and happiness 2. Measure effect of emotions on incentive compatible behavior  rather than on attitudes, opinions, expected decisions 3. Differentiate the impact of incidental emotions on ‘lottery risk’ and ‘interactive risk’

8. Summary of dimensional structure

9. Experiment 1: Lottery Risk Goals:  Replicate Lerner & Keltner’s results regarding risky choices (most of their studies examine risk perception)  Real monetary consequences (all of their results were hypothetical)  Does Fear increase risk aversion compared to Anger?  How about happiness? (happiness is high in certainty and individual control like anger, but positive in valence)

10. Experiment 1 Design Emotion (3) x Emotion Check (2) BS design  Approximately n=20 per group useable data  About 5 additional subjects per group had to be eliminated for not following directions Emotion: incidental emotion evoked thru writing task  fear, anger, happiness Emotion Check: whether or not emotion checklist given after emotion induction Procedure  Induce emotion in “Study 1” (½ answer emotion checklist, ½ don’t)  Risk attitude assessed in “Study 2”—paid based on decisions & chance

11. Emotion Induction Writing Task “Please try to remember an experience in the past 2 years that made you feel extremely fearful [angry, happy]. Put yourself back into the situation as though you were just now experiencing it. Then prepare to imagine telling the experience to a best friend or relative. Remember that it is very important that your friend understand exactly how you feel about the incident and why you felt that way. Please write what you would tell your best friend or relative. Use as much detail as possible.”

12. Emotion Manipulation Checklist PANAS (Watson & Clark, 1994) emotion checklist  Please rate very carefully the degree to which you are currently experiencing each of the following feelings (circle a number):

13. Emotion Manipulation Checks High Cronbach’s alphas (.92,.88,.94) Manipulation check good (but not perfect)  Main problem = students too happy in AZ!

14. Assessing Individual Risk Attitude Risk attitude questionnaire (Holt and Laury, 2002).  10 consecutive choices between 2 lotteries (A and B) with two outcomes each  Lottery A outcomes: $20 and $16 (low variance)  Lottery B outcomes: $38.50 and $1 (high variance)  The probabilities are systematically manipulated so that for small P’s A has a higher expected value than B, but as P increases the difference gradually decreases, until B has a higher expected value than A.

15. Assessing Individual Risk Attitude A rational player should switch from Option A to B only once Risk Aversion score = switching point (higher values = more risk averse) Risk neutral switching point 4-5 (when EV is approx. matched) One lottery randomly chosen, played, and cash payments given out Risk Averse Option 1/10 chance of winning $20 9/10 chance of winning $16 Risk Averse Option 1/10 chance of winning $20 9/10 chance of winning $16 Risk Seeking Option 1/10 chance of winning $38.50 9/10 chance of winning $1 Risk Seeking Option 1/10 chance of winning $38.50 9/10 chance of winning $1 Risk Averse Option 4/10 chance of winning $20 6/10 chance of winning $16 Risk Averse Option 4/10 chance of winning $20 6/10 chance of winning $16 Risk Seeking Option 4/10 chance of winning $38.50 6/10 chance of winning $1 Risk Seeking Option 4/10 chance of winning $38.50 6/10 chance of winning $1 Risk Averse Option 10/10 chance of winning $20 0/10 chance of winning $16 Risk Averse Option 10/10 chance of winning $20 0/10 chance of winning $16 Risk Seeking Option 10/10 chance of winning $38.50 0/10 chance of winning $1 Risk Seeking Option 10/10 chance of winning $38.50 0/10 chance of winning $1

16. Risk Aversion Scores ME of Emotion (F 2,110 =5.31, p=.006) Risk aversion scores ordered as predicted

17. Risk Aversion Scores Interesting Aside: No significant differences if compare “positive” (happiness) vs. “negative” (fear or anger) emotions

18. Summary of Experiment 1 Lerner & Keltner results extended Fear > Happiness>Anger wrt risk aversion  Strong result  Based on actual decisions with large consequences (mean payout = $23.81)  Interesting that happiness is somewhere in between (similar to Lerner & Keltner results) Thus, incidental emotion appears to impact risk attitude in predictable manner Not simply emotion-valence since two negative emotions lead to different risk attitudes

19. Experiment 2: Interactive Risk What happens when the source of risk is the behavior of another person instead of the environment? Risk is not a simple construct  Lottery risk (Exp 1)  Interactive risk (Exp 2) Predictions  In interactive risk anger (negative, in individual control) will lead to more risk aversion than fear.  Happiness is also in individual control, but positive.

20. The Stag-Hunt Game Study disclaimer: No animals will be harmed in the course of this experiment. We apologize for the animal hunting cover story.

21. The Stag-Hunt Game Risk averse option = hunt rabbits Risk seeking option = hunt stags Equilibrium Solution 1 Equilibrium Solution 2

22. Experiment 2 Design Emotion (3) BS design  Approximately n=15 per cell Emotion: incidental emotion evoked thru writing task  fear, anger, happiness Emotion Check: none conducted for this study Procedure  Induce emotion in “Study 1”  Interactive game in “Study 2”  Single decision  No cover story– simple Option A ($10) vs. Option B ($0 or $20)  After decision, estimated probability of others’ choices

23. Experiment 2 Summary Emotions do not seem to impact our perceived risk (other person’s behavior) Emotions do impact interactive behavior  Angry and Happy people are more risk averse than fearful people. Opposite results from Exp 1…

24. Conclusion Distinct, differentiated, incidental emotions can affect unrelated decisions Exp 1: Aversion to Lottery risk  Fear > Happiness > Anger Exp 2: Aversion to Interactive risk  Fear < Happiness < Anger Emotions are complex. So is risk. We need to consider the interaction between the emotional dimensions and the risk dimensions.

25. Thank you! Come to AZ and get happy! Questions? Thoughts?