IDEAS home Printed from https://ideas.repec.org/a/wly/revfec/v37y2019i1p92-105.html
   My bibliography  Save this article

DEEP sleep: The impact of sleep on financial risk taking

Author

Listed:
  • John R. Nofsinger
  • Corey A. Shank

Abstract

In this paper, we examine the relationship between sleep and financial risk taking. The results indicate that individuals who have better sleep display less distortion of probability, are less susceptible to the present bias, and have a lower discounting rate. Specifically, individuals with better self‐reported sleep quality have less distortion of probability, a more curved utility function, and are less loss averse, while those with fewer sleep disturbances display less probability distortion and have more curvature in their utility function. Overall, the results show that there are cognitive deficits in financial decision making by having poor sleep habits that can have important consequences.

Suggested Citation

  • John R. Nofsinger & Corey A. Shank, 2019. "DEEP sleep: The impact of sleep on financial risk taking," Review of Financial Economics, John Wiley & Sons, vol. 37(1), pages 92-105, January.
    • Handle: RePEc:wly:revfec:v:37:y:2019:i:1:p:92-105
    DOI: 10.1002/rfe.1034
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/rfe.1034
    Download Restriction: no
    File URL: https://libkey.io/10.1002/rfe.1034?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lisa A. Kramer & Mark J. Kamstra & Maurice D. Levi, 2000. "Losing Sleep at the Market: The Daylight Saving Anomaly," American Economic Review, American Economic Association, vol. 90(4), pages 1005-1011, September.
    2. Russell Gregory‐Allen & Ben Jacobsen & Wessel Marquering, 2010. "The Daylight Saving Time Anomaly In Stock Returns: Fact Or Fiction?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(4), pages 403-427, December.
    3. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    4. Garrett, Ian & Kamstra, Mark J. & Kramer, Lisa A., 2005. "Winter blues and time variation in the price of risk," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 291-316, March.
    5. J. Michael Pinegar, 2002. "Losing Sleep at the Market: Comment," American Economic Review, American Economic Association, vol. 92(4), pages 1251-1256, September.
    6. Shu, Hui-Chu, 2010. "Investor mood and financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 267-282, November.
    7. Austin C. Smith, 2016. "Spring Forward at Your Own Risk: Daylight Saving Time and Fatal Vehicle Crashes," American Economic Journal: Applied Economics, American Economic Association, vol. 8(2), pages 65-91, April.
    8. David L. Dickinson & Ananish Chaudhuri & Ryan Greenaway-McGrevy, 2017. "Trading while sleepy? Circadian mismatch and excess volatility in a global experimental asset market," Working Papers 17-06, Department of Economics, Appalachian State University.
    9. Negrea, Bogdan & Toma, Mihai, 2017. "Dynamic CAPM under ambiguity—An experimental approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 16(C), pages 22-32.
    10. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    11. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    12. Powell, Melanie & Ansic, David, 1997. "Gender differences in risk behaviour in financial decision-making: An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 605-628, November.
    13. Robert Durand & Rick Newby & Kevin Tant & Sirimon Trepongkaruna, 2013. "Overconfidence, overreaction and personality," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 5(2), pages 104-133, November.
    14. Dwyer, Peggy D. & Gilkeson, James H. & List, John A., 2002. "Gender differences in revealed risk taking: evidence from mutual fund investors," Economics Letters, Elsevier, vol. 76(2), pages 151-158, July.
    15. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    16. Bechara, Antoine & Damasio, Antonio R., 2005. "The somatic marker hypothesis: A neural theory of economic decision," Games and Economic Behavior, Elsevier, vol. 52(2), pages 336-372, August.
    17. Bucciol, Alessandro & Miniaci, Raffaele & Pastorello, Sergio, 2017. "Return expectations and risk aversion heterogeneity in household portfolios," Journal of Empirical Finance, Elsevier, vol. 40(C), pages 201-219.
    18. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
    19. Cary Frydman & Nicholas Barberis & Colin Camerer & Peter Bossaerts & Antonio Rangel, 2014. "Using Neural Data to Test a Theory of Investor Behavior: An Application to Realization Utility," Journal of Finance, American Finance Association, vol. 69(2), pages 907-946, April.
    20. Brian M. Lucey & Michael Dowling, 2005. "The Role of Feelings in Investor Decision‐Making," Journal of Economic Surveys, Wiley Blackwell, vol. 19(2), pages 211-237, April.
    21. Olivier Toubia & Eric Johnson & Theodoros Evgeniou & Philippe Delquié, 2013. "Dynamic Experiments for Estimating Preferences: An Adaptive Method of Eliciting Time and Risk Parameters," Management Science, INFORMS, vol. 59(3), pages 613-640, June.
    22. Jawad M. Addoum & George Korniotis & Alok Kumar, 2017. "Stature, Obesity, and Portfolio Choice," Management Science, INFORMS, vol. 63(10), pages 3393-3413, October.
    23. Corey Allen Shank, 2018. "Deconstructing the corporate psychopath: an examination of deceptive behavior," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 10(2), pages 163-182, June.
    24. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    25. Drew Dawson & Kathryn Reid, 1997. "Fatigue, alcohol and performance impairment," Nature, Nature, vol. 388(6639), pages 235-235, July.
    26. Nofsinger, John R. & Patterson, Fernando M. & Shank, Corey A., 2018. "Decision-making, financial risk aversion, and behavioral biases: The role of testosterone and stress," Economics & Human Biology, Elsevier, vol. 29(C), pages 1-16.
    27. Mark J. Kamstra & Lisa A. Kramer & Maurice D. Levi, 2002. "Losing Sleep at the Market: The Daylight Saving Anomaly: Reply," American Economic Review, American Economic Association, vol. 92(4), pages 1257-1263, September.
    28. Kountouris, Yiannis & Remoundou, Kyriaki, 2014. "About time: Daylight Saving Time transition and individual well-being," Economics Letters, Elsevier, vol. 122(1), pages 100-103.
    29. Patterson, Fernando M. & Daigler, Robert T., 2014. "The abnormal psychology of investment performance," Review of Financial Economics, Elsevier, vol. 23(2), pages 55-63.
    30. Charness, Gary & Gneezy, Uri, 2012. "Strong Evidence for Gender Differences in Risk Taking," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 50-58.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alok Kumar, 2019. "The changing landscape of behavioral finance," Review of Financial Economics, John Wiley & Sons, vol. 37(1), pages 3-5, January.
    2. Fidanoski, Filip & Johnson, Timothy, 2023. "A z-Tree implementation of the Dynamic Experiments for Estimating Preferences [DEEP] method," Journal of Behavioral and Experimental Finance, Elsevier, vol. 38(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jonathan James, 2023. "Let there be light: Daylight saving time and road traffic collisions," Economic Inquiry, Western Economic Association International, vol. 61(3), pages 523-545, July.
    2. Daniel Kuehnle & Christoph Wunder, 2016. "Using the Life Satisfaction Approach to Value Daylight Savings Time Transitions: Evidence from Britain and Germany," Journal of Happiness Studies, Springer, vol. 17(6), pages 2293-2323, December.
    3. Maria Strydom & Amale Scally & John Watson, 2019. "Impact of mood and gender on individual investors’ reactions to retractions and corrections of earnings forecasts," Applied Economics, Taylor & Francis Journals, vol. 51(9), pages 941-955, February.
    4. Siganos, Antonios, 2019. "The daylight saving time anomaly in relation to firms targeted for mergers," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 36-43.
    5. Tihana Škrinjarić & Branka Marasović & Boško Šego, 2021. "Does the Croatian Stock Market Have Seasonal Affective Disorder?," JRFM, MDPI, vol. 14(2), pages 1-16, February.
    6. Stracca, Livio, 2004. "Behavioral finance and asset prices: Where do we stand?," Journal of Economic Psychology, Elsevier, vol. 25(3), pages 373-405, June.
    7. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    8. Bellofatto, Anthony & Broihanne, Marie-Hélène & D'Hondt, Catherine, 2019. "Appetite for information and trading behavior," LIDAM Discussion Papers LFIN 2019002, Université catholique de Louvain, Louvain Finance (LFIN).
    9. K.S. Muehlfeld & G.U. Weitzel & A. van Witteloostuijn, 2012. "Fight or freeze? Individual differences in investors’ motivational systems and trading in experimental asset markets," Working Papers 12-18, Utrecht School of Economics.
    10. Abudy, Menachem (Meni) & Mugerman, Yevgeny & Shust, Efrat, 2022. "The Winner Takes It All: Investor Sentiment and the Eurovision Song Contest," Journal of Banking & Finance, Elsevier, vol. 137(C).
    11. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    12. Andrea Lippi & Laura Barbieri & Mariacristina Piva & Werner De Bondt, 2018. "Time-varying risk behavior and prior investment outcomes: Evidence from Italy," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 13(5), pages 471-483, September.
    13. Joan Costa‐Font & Sarah Fleche & Ricardo Pagan, 2024. "The welfare effects of time reallocation: evidence from Daylight Saving Time," Economica, London School of Economics and Political Science, vol. 91(362), pages 547-568, April.
    14. Julia Ihli, Hanna & Chiputwa, Brian & Winter, Etti & Gassner, Anja, 2022. "Risk and time preferences for participating in forest landscape restoration: The case of coffee farmers in Uganda," World Development, Elsevier, vol. 150(C).
    15. Husam Aldamen & Janice Hollindale & Jennifer L. Ziegelmayer, 2018. "Female audit committee members and their influence on audit fees," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(1), pages 57-89, March.
    16. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    17. Mark Schneider, 2018. "A Dual System Model of Risk and Time Preferences," Working Papers 18-18, Chapman University, Economic Science Institute.
    18. Belianin, A., 2017. "Face to Face to Human Being: Achievements and Challenges of Behavioral Economics," Journal of the New Economic Association, New Economic Association, vol. 34(2), pages 166-175.
    19. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    20. Mark Schneider, 2016. "Dual Process Utility Theory: A Model of Decisions Under Risk and Over Time," Working Papers 16-23, Chapman University, Economic Science Institute.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:revfec:v:37:y:2019:i:1:p:92-105. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1873-5924 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.