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

Liam Delaney
University College Dublin (UCD) – Geary Institute and Department of Economics

Günther Fink
Harvard University – Department of Population and International Health

Colm P. Harmon
University of Sydney – School of Economics; Institute for the Study of Labor (IZA)

IZA Discussion Paper No. 8060

Abstract:

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.

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