Sadder but Wiser:The Effect of Affective States and Weather on Ambiguity Attitudes

Abstract

Many important decisions are made without precise information about the probabilities of the outcomes. In such situations, individual ambiguity attitudes influence decision making. The present study identifies affective states as a transient cause of ambiguity attitudes. We conducted two random-assignment incentive-compatible experiments, varying subjects’ affective states. We find that sadness induces choices that are closer to ambiguity-neutral attitudes compared to the joy, fear, and control group where decision makers deviate more from payoff- maximizing behavior and are more susceptible to likelihood insensitivity. We also find a similar pattern in a representative population sample where cloudy weather conditions at the day of the survey - a proxy for sad affect - correlate with more ambiguity-neutral attitudes. Our results may help to explain real- world phenomena such as financial markets that react to regular fluctuations in weather conditions.