Stress and Risk - Preferences versus Noise

70 Pages Posted: 9 Jan 2021 Last revised: 7 Jul 2021

See all articles by Elle Parslow

Elle Parslow

Stockholm School of Economics - Department of Economics

Julia Elisabeth Rose

Erasmus University

Date Written: July 7, 2021

Abstract

We analyze the impact of acute stress on risky choice in a laboratory experiment with 194 participants. We separate errors in decision-making from an actual shift in preferences between our experimental treatments without the induction of stress and under stress. We find preferences to be stable across conditions on the aggregate and not confounded by increased noise under stress. Exploratory results show that this null effect is driven by the stability of observed choices across conditions by male participants. Female participants instead show an increase in risk aversion under stress. Structural estimations confirm these findings. Additionally, we find statistically significant evidence for lower cognitive abilities being correlated with more noise in decision-making in general, but independent of treatment.

Keywords: risk preferences, risk aversion, stress, laboratory stressor, Trier social stress test, cortisol

JEL Classification: C91, D81, D87

Suggested Citation

Parslow, Elle and Rose, Julia Elisabeth, Stress and Risk - Preferences versus Noise (July 7, 2021). Available at SSRN: https://ssrn.com/abstract=3733379 or http://dx.doi.org/10.2139/ssrn.3733379

Elle Parslow

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

Julia Elisabeth Rose (Contact Author)

Erasmus University ( email )

Netherlands

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