Emotions, Mood and Decision Making

Emotions, Mood and Decision Making

Agnes Virlics
Copyright: © 2014 |Pages: 22
DOI: 10.4018/ijabe.2014040104
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Decisions are made according to a complex cognitive and emotional evaluation of the situation. The aim of the paper is to examine the effect of mood on risky investment decision making by using a mood induction procedure. The paper investigates how happy and sad mood affects risky investment decision making and whether there is a difference between the perception of fix investments and monetary investments. The analysis has been conducted focusing on individual investment decisions. Data for the research comes from a laboratory experiment, where 166 participants in happy, sad and neutral mood, filled out a questionnaire of investment decisions. The results indicate that mood does affect investment decision making, and positive and negative mood might have similar effect on the investment decision.
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Literature Review

According to Rabin (1998), “because psychology systematically explores human judgment, behavior, and well-being, it can teach us important facts about how humans differ from the way they are traditionally described by economists.” (p. 11) According to Kahneman (2003), economists often criticize the research of psychologists because of their biases and errors, even though the economical rational agent models are psychologically unrealistic.

Rick and Loewenstein (2008) define behavioural economics as “a subdiscipline of economics that incorporates more psychologically realistic assumptions to increase the explanatory and predictive power of economic theory. The field first achieved prominence in the 1980s and has been gaining influence since then.” (p. 139)

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