The role of emotion on the willingness to pay to eliminate uncertainty

Abstract

Emotions can influence everyday decisions, including economic ones. Recently, behavioural economics began incorporating the effect of emotions into mainstream economic theory. We are interested in furthering these developments by determining if people make diverging choices in risky situations under different emotional states. We randomly induced negative or positive affect in 102 participants. Participants were then presented with a choice of participating in one of two lotteries: one paying $8 with certainty and one paying $5 or $15, each with a probability of 0.5. Before choosing a lottery, participants were asked their willingness to pay to find out which payoff would occur in the second lottery. Participants in the negative affect condition had significantly lower willingness-to-pay for the information than in the positive affect condition and the control group, indicating that negative affect causes a shift in risk preferences. These results can potentially be generalized to individuals in a negative affective state, such as the poor, and may help to account for certain types of risky behaviours observed in these groups.