Experimental Design
To explore the interaction effect between emotions and investment decisions an experiment combining two methods will be set up. First, a structured observation in the form of showing one crowdfunding video to participants will be conducted, to observe people’s behavior. By using the software Tawny.ai, the emotions of the study participants, as shown in reactions in the form of facial expressions, can be recorded and presented in data form. In a second step, participants have to answer a questionnaire consisting of closed-ended responses to bring the investment decision into the experiment. Data analysis should then confirm or reject the hypotheses and answer the research questions. The study is not location-bound and can be carried out online by the test person on their device.
Before watching a startup pitch video, where Tawny.ai will collect data based on facial expressions, participants are asked about their current affective state, a longer-lasting emotional state, which serves as one moderator. During the video presentation, Tawny.ai measures the valence and arousal participants have shown with their facial expressions as well as the single discrete emotions of happiness, surprise, anger, and sadness. In addition, the discrete emotions of desire and anger are evaluated using the Discrete Emotion Questionnaire. The DEQ is a tool to measure self-reported emotions from participants (Harmon-Jones et al. 2016).
For further processing, participants will be divided into two groups to observe the influence of emotions regarding two different scenarios: reward-based crowdfunding, where the investor receives a reward in return, and equity-based crowdfunding, which means the investment into the equity share of a startup company. The aim is to have about 60 participants each. Throughout the experiment, the currency “ECU” will be used, which will be exchanged into Euros with a conversion rate of 250 to 1 once the experiment is completed. The conversion rate will not be disclosed to the participants in advance.
Participants will be asked three investment-related questions: (1) whether they want to invest in the company or not; (2) how many ECUs they want to invest (0, 250, 500, 750, or 1000) or for reward-based crowdfunding, which package they want to choose (Basic, Standard, Premium, or Ultimate); and (3) how participants adjust their decision considering the additional information on the funding status, in terms of a 25% and 90% funding target achieved.
Emotional expressivity is measured using a questionnaire developed and validated by Kring et al. (1994), to better analyze the data and to use as the second moderator. Furthermore, questions regarding their perception of the idea, to investigate the extent to which an individual's interest in the idea influences their investment decision, concerning the individual's risk-taking tendencies, and dietary preferences are included. These control variables will improve the analysis of the participant's behavior throughout the experiment.
To analyze if participants with more financial knowledge behaved differently than participants with less financial knowledge and are less inclined to make decisions driven by emotion and more likely to invest in ideas based on market potential, the experiment will include a financial literacy quiz, first created by Fernandez et al. (2014) and later adjusted by Hanaki (2022). The quiz includes 12 questions that vary in degree of difficulty and focus on the characteristics of financial products and interests.
The experiment is conducted incentivized to simulate an investment decision that can improve or worsen the outcome. First, each participant receives 2 euros as so-called „show-up" compensation for participating in the experiment. An additional investment budget of 1000 ECU is provided, which is equivalent to 4 euros. The participant can either increase or lose the investment budget depending on the investment decision. The performance is not related to a predefined set of right or wrong answers but to one's own decision in relation to the decisions of all participants. This results in two scenarios in which the decision to invest or not is right or wrong depending on whether the majority of the participants decide in favor of investing or not. This approach follows the so-called „beauty-contest-game" approach according to Keynes.