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The Impacts of Stress on Economic Decisions

Author

Listed:
  • Zachary P. Hohman

    (Social Identity Theory and Health Laboratory, Department of Psychological Sciences, Texas Tech University)

  • Darren Hudson

    (Department of Agricultural and Applied Economics, Texas Tech University
    Texas AgriLife Research - Lubbock)

  • Ryan Williams

    (Department of Agricultural and Applied Economics, Texas Tech University
    Texas AgriLife Research - Lubbock)

  • Breanna N. Harris

    (Department of Biological Sciences, Texas Tech University)

  • Jessica L. Alquist

    (Department of Psychological Sciences, Texas Tech University)

  • Donna Mitchell

    (Department of Agricultural and Applied Economics, Texas Tech University)

  • Elizabeth M. Niedbala

    (Department of Psychological Sciences, Texas Tech University)

  • Mindi Price

    (Department of Psychological Sciences, Texas Tech University)

Abstract

The rational choice model presumes that individuals are rational and make optimizing decisions based on available information. Theory suggests that lack of information and risk (and risk perceptions) can alter decisions from the static perfect information case, but do not necessarily result in irrational decisions. Stress is another factor that may alter our perceptions and increase cognitive loading (increase the cost) of decision-making. Here, we use an experiment to induce stress and employ a simple ultimatum bargaining game to determine whether stress impacts economic decisions. Our results indicate that those exposed to stress (psychological, uncertainty or physiological, cold pressor task) significantly lower their gains (become less aggressive in bidding) than the control group. These results suggest that stress does, in fact, change behavior and leads to "hedging" behavior that lowers overall gains but increases the probability of success.

Suggested Citation

  • Zachary P. Hohman & Darren Hudson & Ryan Williams & Breanna N. Harris & Jessica L. Alquist & Donna Mitchell & Elizabeth M. Niedbala & Mindi Price, 2019. "The Impacts of Stress on Economic Decisions," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 3(1), pages 30-36, March.
    • Handle: RePEc:beh:jbepv1:v:3:y:2019:i:1:p:30-36
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    References listed on IDEAS

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