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The effect of emotion on risky decision making in the context of prospect theory: a comprehensive literature review

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Abstract

Prospect theory has developed into a dominant and widely accepted model to describe risky decision making. Across several research fields, findings regarding emotion’s effect on risky decision making have supported the importance of emotions in the context of this model. However, those findings regarding deviating risk preferences and decision-making behavior have not yet been included in prospect theory and the current state of research is still fragmented and partly contradictory. Therefore, this paper presents a narrative literature review on the effect of emotion on prospect theory’s predictions for risky decision making. The results are discussed according to the type of emotion and their respective effect on prospect theory’s value function and probability weighting function. By comparing the findings with existing conceptual contributions in this field, this review aims to demonstrate the necessity of a more comprehensive view on emotion’s effect on risky decision making and to point out the missing elements, therefore providing indications for potential future directions.

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  1. Philipps-University Marburg, Universitätsstr. 24, 35037, Marburg, Germany

    Tobias Thomas Prietzel

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Prietzel, T.T. The effect of emotion on risky decision making in the context of prospect theory: a comprehensive literature review. Manag Rev Q 70, 313–353 (2020). https://doi.org/10.1007/s11301-019-00169-2

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