The Influence of Fear in Decisions: Experimental Evidence

45 Pages Posted: 4 Feb 2010

See all articles by Olivier Chanel

Olivier Chanel

University of Angers - Research Group in Quantitative Saving (GREQAM)

Graciela Chichilnisky

Columbia University

Date Written: December 3, 2009

Abstract

This article studies decisions made under conditions of fear, when a catastrophic outcome is introduced in a lottery. It reports on experimental results and seeks to compare the predictions of the expected utility (EU) framework with those of a new axiomatic treatment of choice under uncertainty that takes explicit account of emotions such as fear (Chichilnisky, 1996, 2000, 2002). Results provide evidence that fear influences the cognitive process of decision-making by leading some subjects to focus excessively on catastrophic events. Such heterogeneity in subjects’ behavior, while not consistent with EU-based functions, is fully consistent with the new type of utility function implied by the new axioms.

Keywords: decision under risk, losses, catastrophic event, fear, probability weighting

JEL Classification: C91, D81

Suggested Citation

Chanel, Olivier and Chichilnisky, Graciela, The Influence of Fear in Decisions: Experimental Evidence (December 3, 2009). Available at SSRN: https://ssrn.com/abstract=1522277 or http://dx.doi.org/10.2139/ssrn.1522277

Olivier Chanel

University of Angers - Research Group in Quantitative Saving (GREQAM) ( email )

Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France

Graciela Chichilnisky (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States
212 678 1148 (Phone)
212 678 0405 (Fax)

HOME PAGE: http://www.chilchilnisky.com

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