Emotional balance and probability weighting
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We find suggestive evidence that emotional balance has an impact on probability weighting incremental to demographic controls. Specifically, low negative affectivity (implying high emotional balance) tends to be a characteristic of those whose probability weighting functions exhibit lower curvature and more neutral elevation. In other words, emotional balance seems to push people in the direction of normative expected utility theory.
KeywordsEmotional balance Prospect theory Negative affectivity Probability weighting
An anonymous referee of this journal provided helpful comments, as did James Choi, Werner DeBondt, Mark Kamstra, Lisa Kramer, Andy Previtero, Kent Womack, and attendees at Queen’s University’s Annual Behavioral Finance Conference (2011) and National Taiwan University’s International Conference on Economics, Finance and Accounting (2011), along with workshops at Thammasat University of Thailand (2011) and National Cheng Chi University of Taiwan (2011). Remaining errors are our own responsibility.
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