Do Emotions Benefit Investment Decisions? Anticipatory Emotion and Investment Decisions in Non-professional Investors

Abstract

Increasing financial trading performance is big business. A lingering question within academia and industry concerns whether emotions improve or degrade trading performance. In this study, 30 participants distributed hypothetical wealth between a share (a risk) and the bank (paying a small, sure, gain) within four trading games. Skin Conductance Response was measured while playing the games to measure anticipatory emotion, a covert emotion signal that impacts decision-making. Anticipatory emotion was significantly associated with trading performance but the direction of the correlation was dependent upon the share’s movement. Thus, anticipatory emotion is neither wholly “good” nor “bad” for trading; instead, the relationship is context-dependent. This is one of the first studies exploring the association between anticipatory emotion and trading behaviour using trading games within an experimentally rigorous environment. Our findings elucidate the relationship between anticipatory emotion and financial decision-making and have applications for improving trading performance in novice and expert traders.

The Role of Emotions in Investment Decisions: The Effects of Vividness of a Crowdfunding Campaign Video

“…Nowadays, there is little doubt that emotions of all kinds are an integral part of decision-making under risk and uncertainty. There is evidence that immediate emotions, that is, anticipatory emotions, are directly linked to decisions under risk (Hinvest et al, 2021;Lucarelli et al, 2015;Rubaltelli et al, 2010;Schlösser et al, 2013). Furthermore, it is believed that weather and mood influence risk behavior as well (DellaVigna, 2009;Guven & Hoxha, 2015).…”

“…Now that the relevant terms and theories around decision-making and different sentiments are described, we can turn to the most important part of the literature review, the interplay of sentiments and cognition. Today, there is little doubt that sentiments of all kinds, be it emotions, feelings, mood, or affect, have a tremendous influence on decision-making (e.g., DellaVigna, 2009;Gardner, 1985;Guven & Hoxha, 2015;Han et al, 2007;Gardner & Hill, 1990;Hinvest et al, 2021;Huang, 2018;Lacasse, 2017;Lerner et al, 2015;Loewenstein & Lerner, 2003;Lucarelli et al, 2015;Rubaltelli et al, 2010;Schlösser et al, 2013).…”

“…The existing literature focuses primarily on the rational part of decision-making and refers to signaling theory (Spence, 1974) as an explanation for the positive effect of campaign videos on crowdfunding success rates. However, they do not include the role of emotions, which has been proven to play a crucial role in the decision-making process (e.g., Lacasse, 2017;Lerner et al, 2015;Loewenstein & Lerner, 2003;Hinvest et al, 2021). There is, for example, evidence that the vividness of a stimulus has an impact on emotions, and consequently the behavior, during the decision-making process (Hales et al, 2011;Loewenstein et al, 2001;Nisbett & Ross, 1980).…”