Risk adaptation and emotion differentiation: An experimental study of dynamic decision-making

• Published in: Asia Pacific journal of management Vol. 36; no. 1; pp. 219 - 243
• Main Authors: Li, Yan, Ashkanasy, Neal M.
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.03.2019; Springer Nature B.V
• Subjects: Business and Management; Decision making; Emotions; Management; Management science; Risk; Success; Decision-making; Risk adaptation; Emotion differentiation; Risk taking; Australia
• ISSN: 0217-4561; 1572-9958
• DOI: 10.1007/s10490-017-9559-3

We report a study of risky decision-making in a dynamic risk environment, looking in particular at idea that variations in risk preferences over time are subject to both risk adaptation and ability to differentiate negative emotions. In a between-group experiment, 175 participants completed 20 binary project investment decisions under three objective probabilities of success conditions (20%, 50%, and 80%). The results showed that participants’ risk-taking increased at Time 2 only when risky projects have a medium-to-high chance of success (50% or 80%) at Time 1. We also found that participants who could differentiate their negative emotions under the condition with high favorability of risk-taking (80%), achieved higher returns, suggesting that negative emotion differentiation provides emotional information to capture the pattern of decision trials in the environment more favorable to risk-taking success. We conclude with a discussion of the theoretical and practical contributions of our findings for individuals and firms.