The influence of affect on risky behavior: From the lab to real world financial behavior

There is some evidence indicating a relationship between variations in affect and risk aversion: under certain conditions the behavior observed suggests less risk aversion the more positive the affective state. The research presented in this paper examined how variations in everyday affective states influenced risk taking behavior in the laboratory using simple gambling tasks and then sought to corroborate findings in the laboratory using data on real world financial decision making. We observed a significant and positive relationship between affect and risky behavior in the laboratory that we replicated using structural equation modeling on real world financial data. It is argued that cognitive theories of affect and decision making might have real economic consequences.