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Effects of Stress on Economic Decision-Making: Evidence from Laboratory Experiments

  • Delaney, Liam

    ()

    (University of Stirling)

  • Fink, Günther

    ()

    (Harvard School of Public Health)

  • Harmon, Colm P.

    ()

    (University of Sydney)

The ways in which preferences respond to the varying stress of economic environments is a key question for behavioral economics and public policy. We conducted a laboratory experiment to investigate the effects of stress on financial decision making among individuals aged 50 and older. Using the cold pressor task as a physiological stressor, and a series of intelligence tests as cognitive stressors, we find that stress increases subjective discounting rates, has no effect on the degree of risk-aversion, and substantially lowers the effort individuals make to learn about financial decisions.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8060.

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Length: 35 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:iza:izadps:dp8060
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  1. Alan B. Krueger & Andreas Mueller, 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," Working Papers 1093, Princeton University, Department of Economics, Center for Economic Policy Studies..
  2. David Laibson & Andrea Repetto & Jeremy Tobacman, 2005. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Levine's Bibliography 784828000000000643, UCLA Department of Economics.
  3. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  4. Alan B. Krueger & Andreas I. Mueller, 2012. "Time Use, Emotional Well-Being, and Unemployment: Evidence from Longitudinal Data," American Economic Review, American Economic Association, vol. 102(3), pages 594-99, May.
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