Friend or Foe: The Influence of Ambient Sound on Risk Perception

24 Pages Posted: 21 Jul 2019 Last revised: 18 Aug 2019

See all articles by Elise Payzan-LeNestour

Elise Payzan-LeNestour

University of New South Wales; Financial Research Network (FIRN)

Bernard Balleine

University of New South Wales

James Doran

University of New South Wales

Gideon Nave

University of Pennsylvania - The Wharton School

Lionnel Pradier

UNSW Australia Business School

Date Written: August 15, 2019

Abstract

It has been well-established that for simple visual stimuli, what we hear can influence what we see. Here we show in a series of laboratory experiments that this is also true for the perception of risk in financial decision-making. We provide evidence that pairing visual exposure to high (low) price volatility with high (low) ambient sound sharpens risk perception during volatility regimes and, as a direct consequence of that, worsens volatility perception during the transition phase between regimes. Our data are consistent with the idea that such influence of ambient sound on risk perception reflects a direct influence of sound rather than other potential mechanisms such as increased attention, increased arousal, and associative learning. We propose that this originates from the evolutionary advantage to using both visual and auditory cues to establish the relative predictability of events in natural environments. We discuss how these novel insights may be harnessed within the ‘behavioral interventions’ framework to improve financial decision-making.

Keywords: Risk perception, Neurofinance, Laboratory experiments, Decision-making under uncertainty, Behavioral finance, Adaptive market hypothesis

JEL Classification: C91, D83, D87, G02, G11

Suggested Citation

Payzan-LeNestour, Elise and Balleine, Bernard and Doran, James and Nave, Gideon and Pradier, Lionnel, Friend or Foe: The Influence of Ambient Sound on Risk Perception (August 15, 2019). Available at SSRN: https://ssrn.com/abstract=3422762 or http://dx.doi.org/10.2139/ssrn.3422762

Elise Payzan-LeNestour (Contact Author)

University of New South Wales ( email )

Australian School of Business
Sydney, NSW 2052
Australia

HOME PAGE: http://www.elisepayzan.com/

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Bernard Balleine

University of New South Wales ( email )

Sydney
Australia

James Doran

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

Gideon Nave

University of Pennsylvania - The Wharton School ( email )

3730 Walnut St
JMHH Suite 700
Philadelphia, PA 19104-6365
United States

Lionnel Pradier

UNSW Australia Business School ( email )

Sydney, NSW 2052
Australia

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