The influence of fear in decisions: Experimental evidence

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, 2009). 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.

This is a preview of subscription content, log in to check access.

References

  1. Abdellaoui, M. (2000). Parameter-free elicitation of utility and probability weighting functions. Management Science, 46(11), 1497–1512.

    Article  Google Scholar 

  2. Arrow, K. (1971). Essays in the theory of risk bearing. Amsterdam: North Holland.

    Google Scholar 

  3. Bell, D. (1982). Regret in decision-making under uncertainty. Operations Research, 30(5), 961–981.

    Article  Google Scholar 

  4. Bleichrodt, H., & Pinto, J. L. (2000). A parameter-free elicitation of the probability weighting function in medical decision analysis. Management Science, 46(11), 1485–1496.

    Article  Google Scholar 

  5. Calman, K. C., & Royston, G. (1997). Risk language and dialects. British Medical Journal, 315(7113), 939–942.

    Google Scholar 

  6. Chichilnisky, G. (1996). Updating Von Neumann Morgenstern axioms for choice under uncertainty. Proceedings of a Conference on Catastrophic Risks. Toronto: The Fields Institute for Mathematical Sciences.

    Google Scholar 

  7. Chichilnisky, G. (2000). An axiomatic approach to choice under uncertainty with catastrophic risks. Resource and Energy Economics, 22, 221–231.

    Article  Google Scholar 

  8. Chichilnisky, G. (2002). Catastrophical risk. Encyclopedia of Environmetrics (vol. 1, pp. 274–279). Chichester: Wiley.

    Google Scholar 

  9. Chichilnisky, G. (2009). The topology of fear. Journal of Mathematical Economics, 45 (11–12) doi:10.1016/j.jmateco.2009.06.006.

  10. Chilton, S., Jones-Lee, M., Kiraly, F., Metcalf, H., & Pang, W. (2006). Dread risks. Journal of Risk and Uncertainty, 33(3), 165–182.

    Article  Google Scholar 

  11. Corso, P. S., Hammitt, J. K., & Graham, J. D. (2001). Valuing mortality-risk reduction: Using visual aids to improve the validity of contingent valuation. The Journal of Risk and Uncertainty, 23(2), 165–184.

    Article  Google Scholar 

  12. Delquié, P. (1993). Inconsistent trade-offs between attributes: New evidence in preference assessment biases. Management Science, 39(11), 1382–1395.

    Article  Google Scholar 

  13. Elster, J. (1998). Emotions and economic theory. Journal of Economic Literature, 36(1), 47–74.

    Google Scholar 

  14. Etchart-Vincent, N. (2004). Is probability weighting sensitive to the magnitude of consequences? An experimental investigation on losses. Journal of Risk and Uncertainty, 28(3), 217–235.

    Article  Google Scholar 

  15. Etchart-Vincent, N. (2009). Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses. Journal of Risk and Uncertainty, 39(1), 45–63.

    Article  Google Scholar 

  16. Fennema, H., & Van Assen, M. (1999). Measuring the utility of losses by means of the tradeoff method. Journal of Risk and Uncertainty, 17, 277–295.

    Article  Google Scholar 

  17. Gul, F. (1991). A theory of disappointment aversion. Econometrica, 59(3), 667–686.

    Article  Google Scholar 

  18. Kunreuther, H., Novemsky, N., & Kahneman, D. (2001). Making low probabilities useful. Journal of Risk and Uncertainty, 23(2), 103–120.

    Article  Google Scholar 

  19. Loewenstein, G. F., Weber, E. U., Hsee, C. K., & Welch, N. (2001). Risk as feelings. Psychological Bulletin, 127(2), 267–286.

    Article  Google Scholar 

  20. Loomes, G., & Sugden, R. (1982). Regret theory: An alternative theory of rational choice under uncertainty. Economic Journal, 92, 805–824.

    Article  Google Scholar 

  21. Loomes, G., & Sugden, R. (1986). Disappointment and dynamic consistency in choice under uncertainty. Review of Economic Studies, 53, 271–282.

    Article  Google Scholar 

  22. Prelec, D. (1998). The probability weighting function. Econometrica, 66(3), 497–527.

    Article  Google Scholar 

  23. Quiggin, J. (1982). A theory of anticipated utility. Journal of Economic Behavior and Organization, 3, 323–343.

    Article  Google Scholar 

  24. Reid, A. (2006). On the nature of preference in decisions involving risk: A proportion of emotion mechanism. Ph.D., Faculty of the College of Arts and Sciences of Ohio University.

  25. Rottenstreich, Y., & Hsee, C. K. (2001). Money, kisses, and electric shocks: On the affective psychology of risk. Psychological Science, 12(3), 185–190.

    Article  Google Scholar 

  26. Sunstein, C. (1997). Bad deaths. Journal of Risk and Uncertainty, 14(3), 259–282.

    Article  Google Scholar 

  27. Sunstein, C. (2003). Terrorism and probability neglect. Journal of Risk and Uncertainty, 26(2/3), 121–136.

    Google Scholar 

  28. Sunstein, C., & Zeckhauser, R. (2008). Overreaction to fearsome risks. Faculty Research Paper No. RWP08-079, Harvard Kennedy School.

  29. Tversky, A., & Fox, C. (1995). Weighting risk and uncertainty. Psychological Review, 102, 269–283.

    Article  Google Scholar 

  30. Tversky, A., & Kahneman, D. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5, 297–323.

    Article  Google Scholar 

  31. Tversky, A., Sattah, S., & Slovic, P. (1988). Contingent weighting in judgment in choice. Psychological Review, 95(3), 371–384.

    Article  Google Scholar 

  32. Viscusi, W.K. (2009). Valuing risks of death from terrorism and natural disasters. Journal of Risk and Uncertainty, 38(3), 191–213.

    Article  Google Scholar 

  33. Wakker, P., & Deneffe, D. (1996). Eliciting Von Neumann-Morgenstern utilities when probabilities are distorted or unknown. Management Science, 42(8), 1131–1150.

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Olivier Chanel.

Additional information

This research is part of the Program on Information and Resources (PIR) of Columbia University, New York 10025, and of Columbia’s Consortium for Risk Management (CCRM). We thank Dominique Ami, Philippe Bertrand, Robert Kast, Alan Kirman, Marjorie Sweetko, Jean-Christophe Vergnaud, Jun Zheng, an anonymous referee and the Editorial Board of the Journal for helpful comments and suggestions. Financial support of the US Air Force Research Office (Research Grant -5-22272), the French Research Ministry (ATC Inserm 04-5666) and IDEP are gratefully acknowledged. Laurence Bouvard and Carole Paris provided meticulous technical support.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Chanel, O., Chichilnisky, G. The influence of fear in decisions: Experimental evidence. J Risk Uncertain 39, 271 (2009). https://doi.org/10.1007/s11166-009-9079-8

Download citation

Keywords

  • Decision under risk
  • Losses
  • Catastrophic event
  • Fear
  • Probability weighting function

JEL Classification

  • C91
  • D81