The Impacts of Stress on Economic Decisions

23 Pages Posted: 7 Oct 2018

See all articles by Zachary Hohman

Zachary Hohman

Texas Tech University

Darren Hudson

Texas Tech University

Ryan Williams

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics, Students

Breanna Harris

Texas Tech University

Jessica Alquist

Texas Tech University

Donna Mitchell

Texas Tech University

Elizabeth Niedbala

Texas Tech University

Mindi Price

Texas Tech University

Date Written: September 14, 2018

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.

Keywords: stress, economic decisions, ultimatum games, bidding, cold pressor

JEL Classification: D91, C57, C91

Suggested Citation

Hohman, Zachary and Hudson, Darren and Williams, Ryan and Harris, Breanna and Alquist, Jessica and Mitchell, Donna and Niedbala, Elizabeth and Price, Mindi, The Impacts of Stress on Economic Decisions (September 14, 2018). Available at SSRN: https://ssrn.com/abstract=3249793 or http://dx.doi.org/10.2139/ssrn.3249793

Zachary Hohman

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Darren Hudson (Contact Author)

Texas Tech University ( email )

Box 42132
Lubbock, TX 79409-2132
United States

Ryan Williams

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics, Students ( email )

Box 42132
Lubbock, TX 79409-2132
United States

Breanna Harris

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Jessica Alquist

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Donna Mitchell

Texas Tech University

2500 Broadway
Lubbock, TX 79409
United States

Elizabeth Niedbala

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Mindi Price

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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