Affective reactions influence investment decisions: evidence from a laboratory experiment with taxation |
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Authors: | Martin Fochmann Johannes Hewig Dirk Kiesewetter Katharina Schüßler |
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Institution: | 1.Faculty of Management, Economics and Social Sciences, Behavioral Accounting/Taxation/Finance,University of Cologne,Cologne,Germany;2.Philosophical Faculty II, Chair in Differential and Personality Psychology,University of Würzburg,Würzburg,Germany;3.Faculty of Economics and Management, Chair in Business Taxation,University of Würzburg,Würzburg,Germany;4.Faculty of Economics,University of Munich,Munich,Germany |
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Abstract: | We experimentally investigate the effect of taxation of gains and losses on investment behavior. Based on the insights of economic research and psychological concepts, we expect subjects to react to taxation with behavioral and affective changes. Our main results are threefold: first, we show that taxation on gains and the possibility to deduct losses bias investment behavior, but in different directions. Since net payoffs are identical across all tax scenarios and therefore the same investment behavior is to be expected, these differences are in contrast to what a standard theory would predict. Second, we observe that different tax regulations have different effects on the affective and cognitive perception of our subjects. Third, with respect to possible connections of the affective and cognitive ratings, tax regulations, and investment decisions, we are able to show that arousal and risk perception fail to influence the decision making of participants, while there is a highly significant influence of valence perception on choice patterns. |
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