This experimental study addresses the question
of whether positive and negative emotions have an influence on diversification
behaviour, and it
reveals that only a small part of subjects take rational decisions and always
choose the optimal portfolio. In addition, the study shows that the mood of subjects has an influence
on their portfolio decisions and thus also on their exposure to risk. The average risk of
the portfolio - measured against the standard deviation of the returns - is
lower in the treatment entitled ‘neutral’ than in the treatments entitled
‘positive’ and ‘negative’.
numbers: C91, D81, G11, G41.
Keywords: Emotions, Risk exposure, Laboratory
experiment, Portfolio choice, Investment decisions, Investor rationality.