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Risk Preferences under Acute Stress

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Abstract

Many important decisions are made under stress and they often involve risky alternatives. There has been ample evidence that stress influences decision making in cognitive as well as in affective domains, but still very little is known about whether individual attitudes to risk change with exposure to acute stress. To directly evaluate the causal effect of stress on risk attitudes, we adopt an experimental approach in which we randomly expose participants to a psychosocial stressor in the form of a standard laboratory stress-induction procedure: the Trier Social Stress Test for Groups. Risk preferences are elicited using an incentive compatible task, which has been previously shown to predict risk-oriented behavior out of the laboratory. Using three different measures (salivary cortisol levels, heart rate and multidimensional mood questionnaire scores), we show that stress was successfully induced on the treatment group. Our main result is that acute psychosocial stress significantly increases risk aversion. The effect is mainly driven by males; men in our control group are less risk-averse than women, which is a standard result in the literature, but this difference almost disappears when under psychosocial stress.

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  • Lubomir Cingl & Jana Cahlikova, 2013. "Risk Preferences under Acute Stress," Working Papers IES 2013/17, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2013.
  • Handle: RePEc:fau:wpaper:wp2013_17
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    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/4951/lang/cs
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    Cited by:

    1. Jana Cahlikova & Lubomir Cingl & Ian Levely, 2017. "How Stress Affects Performance and Competitiveness across Gender," CERGE-EI Working Papers wp589, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. Steeve Marchand & Maria Adelaida Lopera, 2017. "Peer Effects and Risk-Taking Among Entrepreneurs: Lab-in-the-Field Evidence," Cahiers de recherche 1703, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    3. Emma Boswell Dean & Frank Schilbach & Heather Schofield, 2017. "Poverty and Cognitive Function," NBER Chapters,in: The Economics of Poverty Traps National Bureau of Economic Research, Inc.
    4. repec:kap:jrisku:v:54:y:2017:i:1:d:10.1007_s11166-017-9252-4 is not listed on IDEAS
    5. Kokot, Johanna, 2017. "Does a spouse's health shock influence the partner's risk attitudes?," Ruhr Economic Papers 707, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    Keywords

    risk preferences; stress; Trier Social Stress Test; cortisol;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics

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