Do you follow your head or your heart? The simultaneous impact of framing effects and incidental emotions on investment decisions

This study is situated in an investment context and explores how the effect of framing (gain versus loss framing) changes the impact of incidental emotions (fear and excitement) on behavioral and physiological outcome measures. While existing literature has found that the effects of framing and incidental emotions both impact decision-making independently, the present study extends this literature to test the simultaneous influence of both gain and loss framing, which has been previously neglected. Sixty participants were randomly divided into groups induced with different incidental emotions (fear/excitement/control). They were asked to make investment choices on thirty investment scenarios by choosing between a safe and a risky investment option presented towards either possible gains or losses associated with financial investments. Our findings suggest that the interplay of framing and incidental emotions does indeed produce novel effects beyond those described in the current literature. For example, participants in the “fear group” prefer more risky investment options in the gain scenarios than participants in the “excitement group”. Most importantly, the interaction between the effects of framing and excitement makes participants myopic about the advantages of risky investment options, whereas the same interaction shows a reverse effect in participants experiencing fear.