Does the Influence of Stress on Financial Risk Taking Depend on the Riskiness of the Decision? Bettina von Helversen (bettina.vonhelversen@unibas.ch) University of Basel, Department of Psychology, Missionsstrasse 62a 4055 Basel, Switzerland Jorg Rieskamp (joerg.rieskamp@unibas.ch) University of Basel, Department of Psychology, Missionsstrasse 62a 4055 Basel, Switzerland Abstract Porcelli and Delgado (2009) argue that stress enhances decision biases such as the reflection effect (i.e., people are more risk seeking in the loss domain than in the gain domain, Kahneman & Tversky, 1979). In the current research we follow up on this result, suggesting that stress enhances preexisting preferences for risk. That is, in decision situations in which people usually are risk seeking, they should become even more risk seeking under stress, whereas in decision situations in which people behave risk averse, they should become even more risk averse. We test these hypotheses in a financial risk- taking task. As a second goal we aimed to examine the mechanism underlying changes in risky decision making under stress. One mechanism by which stress could enhance preexisting preferences is by narrowing the focus of attention to the piece of information that is considered as most important. In line with this idea stress has been shown to reduce cognitive resources and narrow the focus of attention as well as the amount of information that can be processed (Friedman & Forster, 2010; Kelly, Ashleigh, & Beversdorf, 2007; Wichary & Rieskamp, 2011). Thus, stress could influence risky decision making by changing the amount of attention given to the attributes of the choice options such as the possible outcomes (gains or losses) and the probability of the outcome (Ben Zur & Breznitz, 1981). Many decisions under risk and uncertainty are made under physical or emotional stress. Recent research suggests that stress influences decisions between risky options, but that the direction of the influence depends on the characteristics of the gambles. For instance, stress increases risk taking for loss gambles, but decreases risk taking for gain gambles. In the current project we investigate: (1) whether the riskiness of gambles influences the direction of the stress effect and (2) whether changes in risk taking can be linked to changes in attention. Participants who gave relatively more attention to gains than to losses, as indicated by eye- tracking data, were more risk seeking than participants who gave less attention to gains. Stress did not influence participants’ attention. However, stressed participants became more risk seeking when considering gambles with relatively low risk, but less risk seeking for gambles with relatively high risk. Keywords: risk; decision making; stress; cortisol; variance Introduction Every day we make decisions involving risk and uncertainty ranging from buying a gamble ticket to investing in stocks, gold, or real estate. Many of these decisions are not made in cold blood, but under physical or emotional stress. How stress and stress-related release of hormones such as cortisol influence risk preferences, however, is far from clear. Research has found that men, but not women, tend to become more risk seeking under stress (Lighthall, Mather, & Gorlick, 2009; Preston, Buchanan, Stansfield, & Bechara, 2007; Starcke, Wolf, Markowitch, & Brand, 2008). Similarly, studies on financial risk taking have found divergent results. For instance, offering participants choices between risky and relatively safe options, Porcelli and Delgado (2009) found that participants became more risk seeking under stress when choosing between options involving losses, but less risk seeking when choosing between options involving gains. In a similar vein, Carr and Steele (2010) found that stereotype threat reduced risk taking in women. Von Dawans, Fischbacher, Kirschbaum, Fehr, & Heinrichs (2012), however, found no influence of stress on decisions between gambles involving gains and losses. Variability in Outcomes as a Measure of Risk The vast majority of research on financial risk taking involves the choice between gambles; that is, options with various outcomes that occur with a specific probability and that differ in valence (e.g., gains or losses). The risk of a gamble is commonly defined by the variability of the outcomes, with higher variability implying higher risk. For instance, finance models such as the capital-asses- pricing model equate risk with outcome variance (Sharpe, 1964). However, other variability measures such as the coefficient of variation, a measure based on the relative variance of a gamble, have been proposed to measure risk (Weber, Shafir, & Blais, 2004). In sum, if stress amplifies people’s risk preferences by narrowing their attention to the subjectively important aspect of the decision situation,
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