Acute stress erodes our ability to make financial decisions

April 2nd, 2009 - 4:33 pm ICT by IANS  

Washington, April 2 (IANS) Stress and worries, stemming from extreme insecurity about our jobs and future prospects, could affect our ability to take financial decisions, a study has suggested.
The study, conducted by psychologists Anthony J. Porcelli and Mauricio R. Delgado of Rutgers University, reveals that acute stress affects risk taking during financial decision making.

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 (to induce stress) or room-temperature (no-stress) water.

The results were consistent with a phenomenon known as the reflection effect - we 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, this study suggests that stress exaggerates this effect; 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 researchers propose that under stressful conditions, we fall back on automatic, lower-level thought processes and we “are less able to utilise more rational and deliberative thinking to assist in making decisions”.

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

These findings were published in Psychological Science.

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