Effect of emotion regulation as a de-biasing mechanism on overconfidence in investment behavior

Overconfidence is a bias closely associated with strong positive emotions such as pride. Strong positive emotions can hamper effective decision-making. This paper is predicated on the hypothesis that if investors with a pronounced tendency toward overconfidence can regulate strong positive emotions, they will be able to reduce bias and avoid subpar investment performance. We investigated the relationships among overconfidence, positive emotional reactions, and strategies for regulating emotions after a gain in the stock investment area, where investors succumb to overconfidence and important financial decisions are made. Identifying the differences in cognitive processes and emotion regulation strategies, which more or less overconfident investors exhibit, will in turn provide a de-bias mechanism to reduce overconfidence. The findings of this research will help investors avoid overconfidence by using strategies for emotional regulation reported in this study in order to achieve decision excellence.     

Shark bytes: message sensation value and emotional appeals in shark diving websites

Websites designed to promote risky activities provide a novel context for studying the role of emotional appeals and message sensation value (MSV) in risk messages in order to ultimately understand the type of messages that motivate people to engage in risk behaviors. Framed in theories of message design and emotion, this study investigates representations of threat, efficacy, and the extent to which risk messages appeal to a range of positive and negative emotions through the examination of 53 shark diving websites using content analysis and computer generated linguistic analysis. Results indicate that few websites provide explicit threat information (i.e. severity and susceptibility) but many do present implicit threats. Efficacy-related messages were present on all websites. Positive emotion was more common than negative emotion and there is little representation of the traditional components of MSV. Implications for theory development and communication about risk-seeking are addressed.     

Feeling good,feeling bad,and feeling at‐risk: a review of incidental affect's influence on likelihood estimates of health hazards and life events

The recent increased interest among researchers in the ways in which emotion, mood, and affect influence risk perceptions is an important step in better understanding how people understand and perceive health risk information. However, the literature involving incidental affect (ambient mood) is not as well known. The 23 years of research examining incidental affect's influence on likelihood estimates of health hazards and life events has not previously been integrated and examined critically. This comprehensive review found that incidental affect influenced likelihood estimates in a predictable way. Individuals experiencing positive affect made more optimistic likelihood estimates than did individuals experiencing negative affect. Individuals experiencing negative affect made more pessimistic likelihood estimates than did individuals experiencing positive affect. Anger was unique among negatively valenced emotions by influencing judgments in the same way as positive affect (i.e., relatively optimistic likelihood estimates). Three theoretical explanations are offered, including one that addresses the role of anger specifically.     

Effects of emotional state on behavioral responsiveness to personal risk feedback

The influence of incidental emotion on responsiveness to risk feedback was investigated. One hundred and eighty‐seven male and female undergraduate students experienced a film emotion induction procedure to elicit happiness, sadness, or neutral affect. They then received false feedback indicating that their risk of getting a fictional type of influenza was high or low, and were given the chance to obtain more information about this type of flu and how to prevent it. Among low‐risk participants, experiencing any emotion (happy or sad) resulted in obtaining more information than those in the neutral condition. Conversely, high‐risk participants who experienced any emotion took less information than those in the neutral group. High‐risk feedback produced less positive affect, more negative affect and worry, and higher risk perceptions than low‐risk feedback. The findings have implications for how threatening risk feedback will affect information seeking behavior in the context of an emotional state.     

The perceiver’s social role and a risk’s causal structure as determinants of environmental risk evaluation

We present a dual-process risk perception model that integrates cognitive and emotional as well as consequentialist and deontological components by distinguishing between two modes of evaluative processing: (a) a consequentialist evaluation that focuses on potential consequences and (b) a deontological evaluation that focuses on moral values. Each of these two modes is assumed to trigger specific cognitive evaluations, specific emotions, and specific behavioral tendencies concerning a perceived risk. We conducted an experiment (N = 270) that tested whether the relative dominance of the two evaluative modes would depend on the causal structure of the environmental risk being evaluated and on the social role of the evaluator. Three types of causal structure were varied by providing scenario information: (a) anthropogenic risks that endanger only nature, (b) naturally caused risks with potential harmful consequences for humans, and (c) anthropogenic risks that may harm humans. Participants evaluated each scenario from the perspective of one of three social roles: mayor, expecting parent, and environmental activist. For each scenario, participants specified their focus and evaluated the event’s morality and perceived risk, the intensity of specific emotions, and their preferences for prospective behaviors. Results showed that the consequentialist evaluation was generally stronger than the deontological evaluation and was less affected by the experimental manipulations. The deontological evaluation was substantially affected by the risk’s causal structure. It was stronger for anthropogenic than for natural causation; risks caused by humans were associated with greater perceived moral blameworthiness, more intense morality-based emotions (e.g. outrage), and a stronger tendency to perform agent-related behaviors (e.g. aggression) than naturally occurring risks. The effect of the social role was less pronounced than that of the causal structure. Furthermore, the effect of an evaluative focus on behavior was fully mediated by emotions for deontological evaluations and partially mediated for consequentialist evaluations. The implications for environmental risk perception and communication are discussed.     

Emotions,attitudes, and appraisal in the management of climate-related risks by fish farmers in Northern Thailand

Many previous studies have documented that farmers are risk-averse, while other studies have shown that farmers analyze and estimate risks. Conventional risk aversion measures and analytical judgment often do not fully explain decision behavior. Thus, it may be necessary to consider emotions. The objective of this study was to enhance understanding of the interactions between attitudes, analysis, and emotions in making risk decisions. The study used a mixture of methods, including: a tablet game, risk aversion scales, in-depth interviews, and focus group discussions with fish cage farmers in Northern Thailand. There was no significant difference in risk aversion with respect to gender, age group, or region. Having sufficient capital made it possible to take more risks. Recently being impacted by floods or droughts, or being very concerned with climate change, was not associated with taking fewer risks. Measures of risk aversion did not predict risk decisions. Feeling worried, concerned, anxious, or stressed were the most common negative emotions referred to in interviews. Fear was a reason for not taking risks. Common positive emotions were joy, excitement, and feeling relaxed or relieved. Men who expressed feeling excited or thrilled chose riskier, higher stocking densities in games than women. A common belief was that men were quicker and more confident when making decisions. Another was that emotions had little impact on decisions, but were a response to success and failure – a claim inconsistent with other findings that imply emotions are also important prior to stocking decisions, and while waiting for the harvest. Fear and anxiety in the period prior to harvest may help motivate risk management practices, such as close monitoring and aeration. In conclusion, emotions may play a more important role in making decisions about climate-related risks than was previously recognized.     

The effects of multimedia-induced affective states on recall and decision-making by individual investors

Kida et al. [Account., Organ., Soc. 23 (1998) 451.] found that affective reactions to financial data are easier to recall than the data itself, and that memories for numerical data are often reconstructed to match affective responses. They also demonstrated that investment decisions are influenced by affective responses to financial data. Given that multimedia has become an integral component of financial disclosures, and that multimedia is known to create affective responses, potential exists for multimedia presented in conjunction with financial data to alter recall patterns and influence decision-making. This study involves two experiments where subjects analyze financial data and affective states are manipulated with multimedia presentations peripherally related to the financial data. In the first study, memory reconstruction patterns of subjects receiving multimedia that induces either a positive or negative affective state are compared. The second study investigates the effects of media-induced moods on investment decisions, where a negative or positive affective state is induced with multimedia during analysis of one company, and no affective state is induced during subsequent evaluation of alternative companies. The principal findings from this research are: (1) Multimedia presented in conjunction with financial data can cause users to reconstruct memories to match the affective responses to the multimedia; (2) Multimedia-induced affective responses influence investment decisions; and (3) The recall and decision-making of individual investors with a high need for cognition are not influenced to the same extent by multimedia as the recall and decision-making of investors with a low need for cognition.     

Consequences,morality, and time in environmental risk evaluation

Environmental risks pose a serious problem to individual and societal decision‐making, and the public debate is often characterized by a conflict between morally‐principled and technically oriented points of view. Drawing on previous work of Böhm and Pfister (), we propose a model on how environmental risks are cognitively represented and how risks are evaluated. The model suggests two evaluative pathways, evaluations of consequences and evaluation of moral considerations, each leading to a distinct set of emotions and action tendencies. Either one of these pathways may become dominant depending on the evaluative focus of the person, which, in turn, depends on the causal structure of the risk. An experimental study yields confirming evidence for this model. Furthermore, the influence of time perspective, that is, the delay of negative consequences caused by an environmental risk, is investigated. Contrary to the common assumption, only weak evidence for temporal discounting effects is found. It is concluded that environmental risks, due to their strong moral component, are partly immune to time perspective.     

Auditors' Efficiency Motivated Evaluation

This paper proposes an evaluation approach - “Efficiency Motivated Evaluation” (EME hereafter) - that auditors use in response to increased efficiency demands. EME is defined as discounting (emphasizing) negative (positive) audit evidence and making favorable assessments as the demands for efficiency increase. We propose that increased time pressure will exacerbate auditors' use of EME but that experience will mitigate this tendency. We conduct an experiment in which 83 auditors differing in experience evaluated internal control effectiveness under high or low time budget pressure. Consistent with expectations based on EME, auditors assess overall internal control effectiveness higher, and positive information about controls as more relevant, under high (compared to) low time budget pressure. Moreover, we find that less (compared to more) experienced auditors under high time budget pressure rate negative information about controls as less relevant. The results suggest the importance of assigning experienced staff to high time budget pressure engagements.     

Emotion,affect, and risk communication with older adults: challenges and opportunities

Recent research suggests that emotion, affect, and cognition play important roles in risk perception and that their roles in judgment and decision‐making processes may change over the lifespan. This paper discusses how emotion and affect might help or hinder risk communication with older adults. Currently, there are few guidelines for developing effective risk messages for the world's aging population, despite the array of complex risk decisions that come with increasing age and the importance of maintaining good decision making in later life. Age‐related declines in cognitive abilities such as memory and processing speed, increased reliance on automatic processes, and adaptive motivational shifts toward focusing more on affective (especially positive) information mean that older and younger adults may respond differently to risk messages. Implications for specific risk information formats (probabilities, frequencies, visual displays, and narratives) are discussed and directions for future research are highlighted.     

Asymmetric risk premium in value and growth stocks

There are two competing explanations for the existence of a value premium, a rational market risk explanation, whereby value stocks are inherently more risky than growth stocks, and a market over-reaction hypothesis, where agents overstate future returns on growth stock. Using asymmetric GARCH-M models this paper tests the predictions of the two hypotheses. Specifically, examining whether returns exhibit a positive (negative) risk premium resulting from a negative (positive) shock and the relative size of any premium. The results of the paper suggest that following a shock, volatility and expected future volatility are heightened, leading to a rise in required rates of return which depresses current prices. Further, these effects are heightened for value stock over growth stock and for negative shocks over positive shocks. Thus, in support of the rational risk interpretation, with a volatility feedback explanation for predictive volatility asymmetry.     

银行柜员情绪表现规则对情绪劳动影响的实证研究

银行柜员情绪表现规则和情绪劳动的实证表明:表达积极情绪的表现规则对浅层行为、深层行为具有正向影响;抑制消极情绪的表现规则对浅层行为具有正向影响,对深层行为具有负向影响,深层行为和表达积极情绪的表现规则相关性较高,浅层行为和抑制消极情绪的表现规则相关性较高。     

Managing decision-making with certainty of threat

Several factors, such as emotion and uncertainty of the outcome, influence decision-making. We assessed decision-making during a risky event (natural hazard, focusing here on two types of volcanic threats) by manipulating the certainty of lethal threat in an information campaign. We hypothesized that the reduction of uncertainty of lethal threat in an information campaign would improve behavior through more suitable choices by reducing the use of emotional choices. In the scenario that occurred in a familiar place, participants who received information with uncertainty of lethal threat presented more emotional and comfortable choices, such as staying at home, rather than detached ones, such as leaving the area. These were either appropriate (for volcanic ash cloud) or inappropriate (for pyroclastic flow). The certainty hypothesis was partially validated, as certainty influenced the quality of choice in the scenarios that took place at home. Furthermore, participants in the volcanic disaster context presented less suitable decisions compared to those in the neutral context, which was discussed in terms of the presence of emotions, such as fear of volcanic eruption. Our results highlight the importance of controlling the comforting emotional aspect of the home environment in any information communication.     

Determinants of stakeholders’ attitudes towards a new technology: nanotechnology applications for food,water, energy and medicine

Stakeholder risk and benefit perceptions and attitudes towards a technology matter for the societal response to these technologies. This is especially the case for technological innovations where the public has no direct experience with the technology and its applications. In such cases, expert views are the main source for public opinion formation. Stakeholder risk and benefit perception, and their effect on attitudes towards a new technology (nanotechnology) and its applications were examined in two studies. In a survey, the effect of risk and benefit perception on attitudes to nanotechnology in specific application domains (energy, water, food and medicine) was examined. While risk and benefit perception predicted much of the variance in attitude, experts were more positive about medicine applications and more negative about food applications than could be explained through risk and benefit perception. In the second study, expert focus groups were asked for reasons why food and medicine were seen as more negative and positive than based on the risk and benefit perceptions as measured in the survey. For medicine, the urgency and unique potential of nanotechnology was seen as a reason as why this domain was liked more. For food, the high level of uncertainty about risk assessment and about exposure of consumers and the lack of urgency in applying nanotechnology to food was seen as a reason this domain was liked less. In addition, experts voiced concern about potential negative public response to food applications as reasons for their negative attitude. These results thus suggest that both risk and benefit perception consist of multiple dimensions that require further exploration.     

Roland W. Scholz: Environmental Literacy in Science and Society. From Knowledge to Decisions. Cambridge University Press 2011

This study pursues the following aims: to examine how news stories use frames, emotions, and uncertainty to present environmental risk information; to identify which aspects of risk issues they highlight; and to analyze how these stories’ representations of risk and uncertainty might differ according to the sources they use. Content analysis of 641 news stories in South Korea over the last decade yields three findings: (1) reassurance was the most frequently used news frame, while uncertainty and emotion were used less often than expected; (2) news stories using government/industry/experts as sources vs. activists/lay people highlighted different news frames and risk information; and (3) the two most frequently used uncertainty presentation formats were single point estimate and verbal estimate. This study contributes to existing literature on the roles of media in environmental risk communication in two ways. First, it examines the specific formats journalists use to present uncertainty about risks. Second, it integrates news frames with the emotional characteristics of risk communication and with differences in risk information characteristics according to source. Implications are discussed regarding how a better understanding of news representations of risk could inform and enhance cooperation between experts and journalists, and lead to more effective environmental risk communication. Finally, this content analysis provides a stepping stone for future research that could further investigate and test how publics respond to risk messages that have varying permutations of emotional content and risk presentation formats.     

Portfolio choices and VaR constraint with a defaultable asset

We consider a Constant Elasticity of Variance (CEV) model for the asset price of a defaultable asset showing the so-called leverage effect (high volatility when the asset price is low). We show that a VaR constraint re-evaluated over time induces an agent more risk averse than a logarithmic utility to take more risk than in the unconstrained setting.     

Investigating the effects of computer mediated interruptions: An analysis of task characteristics and interruption frequency on financial performance

Financial and accounting tasks require high levels of concentration as well as cognitive capacity. Today, advanced technology can help facilitate the effective and efficient completion of such tasks. At the same time, however, these same technologies can interrupt work flow and create work-related stress, thus having a deleterious effect on task performance. These interruptions can be characterized across a number of different dimensions, including frequency, complexity, duration, and relevance to the primary task, to name a few. This study examines the effects of interruption frequency, task complexity, and individual characteristics on cognitive load and subsequent decision-making performance on financial tasks. As hypothesized, the results indicate the significant influence of interruption frequency and order of task complexity on cognitive load which influences performance. This research has implications on the design and use of information systems by accounting professionals in order to reduce potential negative effects.     

融资约束对企业出口影响的Heckman验证-基于银行信用风险的视角

基于中国工业企业数据库1998-2014年7032家企业的平衡面板数据,从银行信用风险内部评级的视角,研究融资约束对企业出口的影响.结果表明:银行信贷融资约束与企业的出口决策及出口强度间有显著负相关关系.同时,使用Heckman二阶段模型研究发现:不同形式的商业信用对企业出口决策及出口强度的影响和作用机制会因企业所处供求端位置的不同而存在差异.其中,需求端的商业信用仅与企业出口决策显著正相关,而与出口强度的相关性并不显著;供给端的商业信用则与企业出口强度显著负相关.     

Reinforcement learning and risk preference in equity linked notes markets

Individuals who follow a reinforcement learning heuristic put too much weight on recent failures or successes in placing their next bets. Using a large sample of equity-linked notes (ELNs) investments in South Korea, we find evidence showing a negative effect of reinforcement learning on future investments that lasts longer than one investment period. After losses, investors are less likely to repurchase equity-linked notes and spend less on their repurchases. This behavior also results in reinforcement learners underperforming rational agents. The difference in returns received by reinforcement and non-reinforcement groups is economically large at approximately 10.7%. However, these negative effects of reinforcement learning are mitigated by investors’ higher risk attitudes. We find that more risk-seeking investors are less likely to shun ELNs after undesirable prior returns and that this effect persists for more than one period. The underperformance of reinforcement learners is also reduced with high risk-taking. Overall, our findings highlight how combining different psychological traits can diagnose and improve biases in investor decision-making.     

Risk management and sustainable development: mutual lessons from approaches to the use of indicators

Risk management and sustainable development are frameworks for studying and managing the environmental impacts of human actions; as such each requires indicators for monitoring, decision-making and communication. This paper compares the two frameworks as used in practice, and their experience of using indicators. Sustainable development is a systems-based concept with a long time horizon, a tendency to apply precaution in decisions, and a positive normative 'mission' (development). Risk management focuses on specific, linear chains of cause and effect over short time periods, is typically associated with cost-benefit decision-making, and concentrates on avoiding negative outcomes. However risk management is also potentially a tool for informing and implementing sustainability. Both risk and sustainability are multidimensional constructs which can be indicated in varied ways. The selection of indicators in both fields depends on technical (e.g. robustness, problem-orientation) and communicative criteria (e.g. truthfulness, informativeness, relevance, clarity and resonance). Lessons from risk indicators include a better understanding of communicative criteria such as resonance, and greater awareness of communication pitfalls. Sustainability indicators demonstrate the advantages of a participatory approach to selection for incorporating different values, echoing the experience of the US states' comparative risk assessment approach, as well as the need for a systematic perspective on problems leading to the use of multiple indicators. Risk management and sustainable development have much mutual relevance and could each benefit from more intensive exchange both generally, and regarding the use of indicators.