RePEc: Research Papers in Economics
Research Papers in Economics is a collaborative effort of hundreds of volunteers in many countries to enhance the dissemination of research in economics.
QuBE Working Papers
2020
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#058Download full text
- JEL-Codes:
- G40, D81, D91
- Keywords:
- Behavioural finance, Interoception, probability weighting, neuro-economics, lottery choice, revealed preference.
Is your heart weighing down your prospects? Interoception, risk literacy and prospect theory
The ability to make a beneficial financial choice varies greatly among individuals. One of the ways this variability may present itself is through probability weighting, where on aggregate small probabilities are overweighted and large probabilities are underweighted. This paper investigates if the combination of risk literacy and the neuro-biological concept of interoception plays a role in mediating the over and under-weighting of a prospects likelihood. I find that high risk literacy increases the perception of changes in probability and as such reduces underweighting/overweighting while high interoceptive ability reduces overoptimism towards gambles in males but induces pessimism towards gambles for females.