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

TAMAR KUGLER, LISA ORDÓÑEZ, TERRY CONNOLLY

ICSD, AUGUST 2009

Emotion, Decision and Risk:Betting on Gambles vs.

Betting on People

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

favorWe will investigate how incidental emotions

affect subsequent risk-related decisions in social dilemmas

Decision Making & Emotions

Slow to developEarly 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)

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…

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

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

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’

Summary of dimensional structure

Dimension Anger Happiness Fear

Core theme Demeaning offence

against the individual Progress towards realization of goal

Uncertain threat

Valence Negative Positive Negative

Certainty Certain Certain Very uncertain

Control Human (other) Human (self) Situation

Emotion

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)

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 directionsEmotion: incidental emotion evoked thru writing task

fear, anger, happinessEmotion Check: whether or not emotion checklist

given after emotion inductionProcedure

Induce emotion in “Study 1” (½ answer emotion checklist, ½ don’t)

Risk attitude assessed in “Study 2”—paid based on decisions & chance

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.”

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):

Do not feel Feel stronger at all than ever have

1 2 3 4 5 6 7 8 9

Fear Anger Happiness DistractorsAfraid Mad Joyful Hopeful

Scared Irritated Elated Self-fulfilledNervous Angry Delighted Wishful

Happy ThankfulAshamed

UpsetRegretful

Measured Emotion

Indi

vidu

al It

ems

Emotion Manipulation Checks

High Cronbach’s alphas (.92, .88, .94)Manipulation check good (but not perfect)

Main problem = students too happy in AZ!

Fear Anger Happiness n

Fear 3.37 b 2.22a 3.81b 20

Anger 2.15a 4.45 b 3.9b 20

Happiness 2.73a 2.08a 5.98 d 20

*different subscripts indicate significant difference at p <.05

Measured Emotion *

Manipulated Emotion Condition

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.

Decision #

1 1/10 chance of winning $20 9/10 chance of winning $16 1/10 chance of winning $38.50 9/10 chance of winning $1 A B










Option A Option B Your Choice

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 Seeking Option • 1/10 chance of winning

$38.50• 9/10 chance of winning

$1Risk Averse Option

• 4/10 chance of winning $20

• 6/10 chance of winning $16


$38.50• 6/10 chance of winning

$1

Risk Averse Option • 10/10 chance of winning

$20• 0/10 chance of winning

$16


$38.50• 0/10 chance of winning $1

Risk Aversion Scores

ME of Emotion

(F 2,110=5.31, p=.006)

Risk aversion scores ordered as predicted

Fear Happiness Anger5

6

7

8

9

Manipulated Emotion

Ris

k A

vers

ion

Score

Highly Risk Averse

Risk Neutral

Uncer-tain

Certain

Risk Aversion Scores

Interesting Aside: No significant

differences if compare “positive” (happiness) vs. “negative” (fear or anger) emotions

Positive Negative5

6

7

8

9

Manipulated Emotion

Ris

k A

vers

ion

Score

Highly Risk Averse

Risk Neutral

Summary of Experiment 1

Lerner & Keltner results extendedFear > 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 mannerNot simply emotion-valence since two negative

emotions lead to different risk attitudes

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.

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.

The Stag-Hunt Game

Risk averse option = hunt rabbitsRisk seeking option = hunt stags

Equilibrium Solution

1

Equilibrium Solution

2

Hunter 2 Hunter 1

Rabbit $10,$10 $0,$10

Stag $10, $0 $20,$20

Rabbit Stag

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 studyProcedure

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

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…

Fear Happiness Anger0

10

20

30

40

50Estimated % Actual %

Manipulated Emotion

% S

ele

cti

ng R

A O

pti

on

Risk Averse

Risk Seek-ing

Uncertain/ Human Con-

trol

Certain/ Situa-tionl Control

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.

Thank you!

Come to AZ and get happy!Questions? Thoughts?

Documents

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