Friend or Foe: The Influence of Ambient Sound on Risk Perception
24 Pages Posted: 21 Jul 2019 Last revised: 18 Aug 2019
Date Written: August 15, 2019
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: Suggested Citation