Date Published: January 24, 2019
Publisher: Public Library of Science
Author(s): Sonja van Well, John P. O’Doherty, Frans van Winden, Darrell A. Worthy.
Incidental emotions are defined as feelings that are unrelated to a decision task at hand and thereby not normatively relevant for making choices. The precise influence and formal theoretical implications of incidental emotions regarding financial risk taking are still largely unclear. An effect of incidental emotion on decision-making would challenge the main extant formal theoretical economic models because such models do not allow for an effect of incidental emotions. As financial risk taking is pervasive in modern economies, the role of incidental emotions is an important issue. The goal of this experimental study is threefold. First, we examine the impact of incidental fear on the choice between a sure and a risky monetary option. A well-validated method of fear induction, using electric shocks, is employed for that purpose. Based on emotion studies we hypothesize less risk taking under fear and more risk taking when relieved of fear. Our second goal is to investigate the relative performance of the main existing formal theoretical economic models (based on Expected Utility Theory, Prospect Theory, or the Mean-Variance model) in explaining the behavioral data. We also investigate how these models can be adjusted to accommodate any observed influence of incidental emotion. For that reason, we first theoretically model the potential pathways of incidental fear (and the relief thereof) via the valuation of the choice option rewards or risk-assessment. We then estimate the relevant parameters allowing for both additive as well as interactive effects. Our third and final goal is to explore the neural basis of any observed influence of incidental emotions on decision-making by means of a model-based fMRI analysis, using the findings of existing neuroeconomic studies as the basis for our hypotheses. Our results indicate that the relief of fear can give a substantial boost to financial risk taking (suggestive of exuberance). This impact is best captured by Prospect Theory if we allow for an increase in participants’ valuation of option outcomes when relieved of fear. Moreover, this impact is manifested at the neural level by the activity of the ventromedial prefrontal cortex (vmPFC), a brain area widely regarded as being central for valuation.
“Economists cannot avoid being students of human nature, particularly of exuberance and fear”, according to Alan Greenspan, former Chairman of the Federal Reserve Board of the US (see  p. 17). In his view, the emotions of fear and exuberance (a feeling of joyfulness) play a significant role in the development of stock market prices, with the former depressing and the latter boosting prices. The acknowledgment that emotions are important in financial decision-making, such as dealing with investment in risky assets, is steadily growing [2–6]. This is supported by mounting experimental evidence (for reviews [7–9]). In economics, typically, the emotions that have been studied are ones that are integral to the financial decision process, that is, feelings that arise and should objectively  or normatively  count as input when deciding between investments. Examples are anxiety about the resolution of an investment risk and the regret or disappointment that one will experience in case of a bad outcome. These integral emotions have been studied both from an experimental and formal theoretical modeling point of view (see [7–9]). Less attention has been paid to the impact of incidental emotions, that is, feelings at the time of decision that are not objectively or normatively relevant for deciding [8, 9]. Although some econometric studies have reported a correlation between stock returns and naturalistic phenomena such as the amount of sunshine or yearly seasons , controlled experimental investigation and formal modeling of the impact of incidental emotions on risk taking has been neglected .
Data from two participants were excluded from all analyses due to a lack of risky choices on the decision-making task (≤ 1% of the choices; one participant) or too many missed choices because of self-reported sleepiness (≥ 10% of the trials; one participant).
The precise inluence of incidental emotions on financial risk taking—emotions that are unrelated to the decision task—is still largely unclear and is not accounted for by the main formal theoretical economic models. This study examined the behavioral as well as neural impact of incidental fear on financial risk taking, using a model-based approach.