Acute stress affects financial decision making

April 2nd, 2009 - 11:02 am ICT by ANI  

Washington, April 2 (ANI): While most people appear to be extremely stressed amidst the ongoing recession, a study has suggested that stress may further worsen their financial troubles.

Anthony J. Porcelli and Mauricio R. Delgado, both psychologists at Rutgers University, have found that acute stress affects risk taking during financial decision making.

They conducted a study in which a group of volunteers chose between various financial gambles, after being asked to immerse their hand for a period of time in either ice-cold or room-temperature water.

While the ice-cold water was intended at inducing stress, the room-temperature water would mean that the participants were not stressed.

The researchers said that some of the choices were risky - less likely but with a high payout - and others conservative - more likely but with a lower value.

They found their observations to be consistent with a phenomenon known as the reflection effect - people tend to show increased conservatism when choosing between two potentially positive outcomes, but increase our risky behaviour when choosing between two gambles that result in a loss.

However, the study has shown that stress exaggerates this effect.

According to the researchers, while exposed to stress volunteers were more conservative when choosing between potentially positive outcomes, and were riskier when choosing between gambles that could result in a loss.

The team propose that under stressful conditions, people fall back on automatic, lower-level thought processes and “are less able to utilize more rational and deliberative thinking to assist in making decisions.”

The researchers say that their findings may prove useful in understanding how the environment might influence people’s decision making.

In financial decision making, where rational and deliberative thinking is essential, a stressful environment may hamper our ability to make decisions.

The study has been published in the journal Psychological Science. (ANI)

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