IDEAS home Printed from https://ideas.repec.org/a/eee/beexfi/v24y2019ics2214635019300188.html
   My bibliography  Save this article

Stop the music? The effect of music on risky financial decisions: An experimental study

Author

Listed:
  • Israel, Avi
  • Lahav, Eyal
  • Ziv, Naomi

Abstract

Decision-making processes can be influenced by situational factors, affecting risk taking. Background music, which is present in many everyday situations, has been shown to affect cognitive processes by influencing arousal and mood. The aim of the present study was to examine the possible effect of high- and low-arousal music on decision making in the context of financial investments, focusing on two tasks: a lottery-type task and a portfolio-diversification task. Participants were asked to make investment decisions while either high-tempo music, low-tempo music, or no music was played in the background. On the lottery-type task, low-tempo music led to more risky decisions (i.e., more investment in risky assets) than high-tempo or no music. On the portfolio-diversification task, low-tempo music led to more risky decisions (i.e., less diversification) than high-tempo music. Moreover, on both tasks, participants who subjectively perceived the music as helpful made riskier decisions. Results are discussed with regard to gender differences and previous findings.

Suggested Citation

  • Israel, Avi & Lahav, Eyal & Ziv, Naomi, 2019. "Stop the music? The effect of music on risky financial decisions: An experimental study," Journal of Behavioral and Experimental Finance, Elsevier, vol. 24(C).
    • Handle: RePEc:eee:beexfi:v:24:y:2019:i:c:s2214635019300188
    DOI: 10.1016/j.jbef.2019.07.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2214635019300188
    Download Restriction: no
    File URL: https://libkey.io/10.1016/j.jbef.2019.07.003?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. Richard H. Thaler & Shlomo Benartzi, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. Diana J. Burgess, 2010. "Are Providers More Likely to Contribute to Healthcare Disparities Under High Levels of Cognitive Load? How Features of the Healthcare Setting May Lead to Biases in Medical Decision Making," Medical Decision Making, , vol. 30(2), pages 246-257, March.
    4. Gur Huberman & Wei Jiang, 2006. "Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds," Journal of Finance, American Finance Association, vol. 61(2), pages 763-801, April.
    5. Shlomo Benartzi & Richard H. Thaler, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 73-92.
    6. Bayer, Ya'akov M. & Ruffle, Bradley J. & Shtudiner, Zeev & Zultan, Ro'i, 2018. "Costly superstitious beliefs: Experimental evidence," Journal of Economic Psychology, Elsevier, vol. 69(C), pages 30-43.
    7. Eckel, Catherine C. & Grossman, Philip J., 2008. "Men, Women and Risk Aversion: Experimental Evidence," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 113, pages 1061-1073, Elsevier.
    8. Fernandes, Daniel, 2013. "The 1/N Rule revisited: Heterogeneity in the naïve diversification bias," International Journal of Research in Marketing, Elsevier, vol. 30(3), pages 310-313.
    9. Yalch, Richard F. & Spangenberg, Eric R., 2000. "The Effects of Music in a Retail Setting on Real and Perceived Shopping Times," Journal of Business Research, Elsevier, vol. 49(2), pages 139-147, August.
    10. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    11. Au, Kevin & Chan, Forrest & Wang, Denis & Vertinsky, Ilan, 2003. "Mood in foreign exchange trading: Cognitive processes and performance," Organizational Behavior and Human Decision Processes, Elsevier, vol. 91(2), pages 322-338, July.
    12. Turley, L. W. & Milliman, Ronald E., 2000. "Atmospheric Effects on Shopping Behavior: A Review of the Experimental Evidence," Journal of Business Research, Elsevier, vol. 49(2), pages 193-211, August.
    13. Tal Shavit & Eyal Lahav & Mosi Rosenboim, 2016. "Don’t fear risk, learn about it: how familiarity reduces perceived risk," Applied Economics Letters, Taylor & Francis Journals, vol. 23(15), pages 1069-1072, October.
    14. Gärtner, Manja & Mollerstrom, Johanna & Seim, David, 2017. "Individual risk preferences and the demand for redistribution," Journal of Public Economics, Elsevier, vol. 153(C), pages 49-55.
    15. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-630, October.
    16. John Ifcher & Homa Zarghamee, 2011. "Happiness and Time Preference: The Effect of Positive Affect in a Random-Assignment Experiment," American Economic Review, American Economic Association, vol. 101(7), pages 3109-3129, December.
    17. Ze′ev Shtudiner & Galit Klein & Jeffrey Kantor, 2017. "Who is responsible for economic failures? Self-serving bias and fundamental attribution error in political context," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(1), pages 335-350, January.
    18. Deck, Cary & Jahedi, Salar, 2015. "The effect of cognitive load on economic decision making: A survey and new experiments," European Economic Review, Elsevier, vol. 78(C), pages 97-119.
    19. Bayer, Ya‘akov M. & Shtudiner, Zeev & Suhorukov, Oxsana & Grisaru, Nimrod, 2019. "Time and risk preferences, and consumption decisions of patients with clinical depression," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 78(C), pages 138-145.
    20. Alain Cohn & Jan Engelmann & Ernst Fehr & Michel André Maréchal, 2015. "Evidence for Countercyclical Risk Aversion: An Experiment with Financial Professionals," American Economic Review, American Economic Association, vol. 105(2), pages 860-885, February.
    21. Duffy, Sean & Smith, John, 2014. "Cognitive load in the multi-player prisoner's dilemma game: Are there brains in games?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 51(C), pages 47-56.
    22. 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.
    23. Holger Gerhardt & Guido P. Biele & Hauke R. Heekeren & Harald Uhlig, 2016. "Cognitive Load Increases Risk Aversion," SFB 649 Discussion Papers SFB649DP2016-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    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. Kaijun Zhang & Hongkun Liu & Jun Ye, 2023. "Role of music tempo in choosing from large and small choice sets: insights from functional magnetic resonance imaging (fMRI)," Marketing Letters, Springer, vol. 34(4), pages 633-652, December.
    2. Kumar, Satish & Rao, Sandeep & Goyal, Kirti & Goyal, Nisha, 2022. "Journal of Behavioral and Experimental Finance: A bibliometric overview," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).
    3. Israel, Avi & Rosenboim, Mosi & Shavit, Tal, 2022. "The effect of SMS notifications on time preferences," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 97(C).
    4. Israel, Avi & Rosenboim, Mosi & Shavit, Tal, 2021. "Time preference under cognitive load - An experimental study," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(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. Gerrans, Paul & Yap, Ghialy, 2014. "Retirement savings investment choices: Sophisticated or naive?," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 233-250.
    2. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    3. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    4. Gerhardt, Holger & Schildberg-Hörisch, Hannah & Willrodt, Jana, 2017. "Does self-control depletion affect risk attitudes?," European Economic Review, Elsevier, vol. 100(C), pages 463-487.
    5. Thomas Dohmen & Simone Quercia & Jana Willrodt, 2023. "On the psychology of the relation between optimism and risk taking," Journal of Risk and Uncertainty, Springer, vol. 67(2), pages 193-214, October.
    6. Adam Dominiak & Peter Duersch, 2024. "Choice under uncertainty and cognitive load," Journal of Risk and Uncertainty, Springer, vol. 68(2), pages 133-161, April.
    7. Banerjee, Debosree, 2014. "Ethnicity and Gender Differences in Risk, Ambiguity Attitude," GlobalFood Discussion Papers 180978, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    8. Michael Ungeheuer & Martin Weber, 2021. "The Perception of Dependence, Investment Decisions, and Stock Prices," Journal of Finance, American Finance Association, vol. 76(2), pages 797-844, April.
    9. Marie-Hélène Broihanne & Maxime Merli & Patrick Roger, 2006. "Théorie comportementale du portefeuille. Intérêt et limites," Revue économique, Presses de Sciences-Po, vol. 57(2), pages 297-314.
    10. Lovric, M. & Kaymak, U. & Spronk, J., 2008. "A Conceptual Model of Investor Behavior," ERIM Report Series Research in Management ERS-2008-030-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    11. Dalton, Patricio S. & Nhung, Nguyen & Rüschenpöhler, Julius, 2020. "Worries of the poor: The impact of financial burden on the risk attitudes of micro-entrepreneurs," Journal of Economic Psychology, Elsevier, vol. 79(C).
    12. Fellner, Gerlinde & Maciejovsky, Boris, 2007. "Risk attitude and market behavior: Evidence from experimental asset markets," Journal of Economic Psychology, Elsevier, vol. 28(3), pages 338-350, June.
    13. Moshe Levy & Haim Levy, 2013. "Prospect Theory: Much Ado About Nothing?," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 7, pages 129-144, World Scientific Publishing Co. Pte. Ltd..
    14. Iñigo Iturbe-Ormaetxe & Giovanni Ponti & Josefa Tomás, 2016. "Myopic Loss Aversion under Ambiguity and Gender Effects," PLOS ONE, Public Library of Science, vol. 11(12), pages 1-11, December.
    15. Alserda, Gosse A.G. & Dellaert, Benedict G.C. & Swinkels, Laurens & van der Lecq, Fieke S.G., 2019. "Individual pension risk preference elicitation and collective asset allocation with heterogeneity," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 206-225.
    16. Eriksen, Kristoffer W. & Kvaløy, Ola, 2014. "Myopic risk-taking in tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 37-46.
    17. Chen Lian & Yueran Ma & Carmen Wang, 2019. "Low Interest Rates and Risk-Taking: Evidence from Individual Investment Decisions," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2107-2148.
    18. Mahmoud, Ola, 2022. "Second-order uncertainty and naive diversification," Economics Letters, Elsevier, vol. 216(C).
    19. Epper, Thomas & Fehr-Duda, Helga, 2017. "A Tale of Two Tails: On the Coexistence of Overweighting and Underweighting of Rare Extreme Events," Economics Working Paper Series 1705, University of St. Gallen, School of Economics and Political Science.
    20. J. de Dreu & J.A. Bikker, 2009. "Pension fund sophistication and investment policy," Working Papers 09-13, Utrecht School of Economics.

    More about this item

    Keywords

    Behavioral finance; Experimental finance; Background music; Risk preferences; Investments;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

    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:eee:beexfi:v:24:y:2019:i:c:s2214635019300188. 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: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-behavioral-and-experimental-finance .

    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.