Cortisol Meets GARP: The Effect of Stress on Economic Rationality

CentER Discussion Paper Series No. 2018-045

17 Pages Posted: 2 Dec 2018

See all articles by Elena Cettolin

Elena Cettolin

Tilburg University - Department of Economics

Patricio S. Dalton

Tilburg University - Center for Economic Research (CentER)

Willem Kop

Tilburg University - Faculty of Social and Behavioural Sciences

Wanqing Zhang

Tilburg University - School of Economics and Management

Date Written: November 6, 2018

Abstract

Rationality is a fundamental pillar of Economics. It is however unclear if this assumption holds when decisions are made under stress. To answer this question, we design a laboratory experiment where we exogenously induce physiological stress in participants and test the consistency of their choices with economic rationality. We induce stress with the Cold Pressor test and measure it by assessing individuals’ cortisol levels in saliva. Economic rationality is measured by the consistency of participants’ choices with the Generalized Axiom of Revealed Preference (GARP). We find that participants exposed to the stress manipulation experience a significant increase in cortisol levels compared to those in the placebo group. However, differences in cortisol levels do not affect the consistency of choices with GARP. Our findings provide strong empirical support for the robustness of the economic rationality assumption.

Keywords: Economic Rationality; GARP; Physiological Stress; Cortisol

JEL Classification: C90; C91; D01; D91

Suggested Citation

Cettolin, Elena and Dalton, Patricio S. and Kop, Willem and Zhang, Wanqing, Cortisol Meets GARP: The Effect of Stress on Economic Rationality (November 6, 2018). CentER Discussion Paper Series No. 2018-045. Available at SSRN: https://ssrn.com/abstract=3279491 or http://dx.doi.org/10.2139/ssrn.3279491

Elena Cettolin (Contact Author)

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Patricio S. Dalton

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Willem Kop

Tilburg University - Faculty of Social and Behavioural Sciences ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Wanqing Zhang

Tilburg University - School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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