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Stress Confounds Financial Decision Making

Researchers report stress related to finance is a double-edged sword. That is, it is not surprising that as our economy continues its freefall, we are feeling increasingly more stressed and worried. However, according to a new report in Psychological Science, stress could make our financial troubles even worse.

The study, conducted by psychologists Anthony J. Porcelli and Mauricio R. Delgado of Rutgers University, reveals that acute stress affects risktaking 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 (used to induce stress) or room-temperature (no stress) water. Some of the choices were risky (less likely but with a high payout) and others conservative (more likely but with a lower value).

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 behavior 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 utilize more rational and deliberative thinking to assist in making decisions.”

They also note that these findings have implications for understanding how our environment might influence decision making. In financial decision making, where rational and deliberative thinking is essential, a stressful environment might hamper our ability to make decisions.

Source: American Psychological Association

Stress Confounds Financial Decision Making

Rick Nauert PhD

Rick Nauert, PhDDr. Rick Nauert has over 25 years experience in clinical, administrative and academic healthcare. He is currently an associate professor for Rocky Mountain University of Health Professionals doctoral program in health promotion and wellness. Dr. Nauert began his career as a clinical physical therapist and served as a regional manager for a publicly traded multidisciplinary rehabilitation agency for 12 years. He has masters degrees in health-fitness management and healthcare administration and a doctoral degree from The University of Texas at Austin focused on health care informatics, health administration, health education and health policy. His research efforts included the area of telehealth with a specialty in disease management.

APA Reference
Nauert PhD, R. (2015). Stress Confounds Financial Decision Making. Psych Central. Retrieved on October 18, 2018, from https://psychcentral.com/news/2009/04/02/stress-confounds-financial-decision-making/5104.html

 

Scientifically Reviewed
Last updated: 6 Oct 2015
Last reviewed: By John M. Grohol, Psy.D. on 6 Oct 2015
Published on PsychCentral.com. All rights reserved.