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Cortisol shifts financial risk preferences.

ABSTRACT: Risk taking is central to human activity. Consequently, it lies at the focal point of behavioral sciences such as neuroscience, economics, and finance. Many influential models from these sciences assume that financial risk preferences form a stable trait. Is this assumption justified and, if not, what causes the appetite for risk to fluctuate? We have previously found that traders experience a sustained increase in the stress hormone cortisol when the amount of uncertainty, in the form of market volatility, increases. Here we ask whether these elevated cortisol levels shift risk preferences. Using a double-blind, placebo-controlled, cross-over protocol we raised cortisol levels in volunteers over 8 d to the same extent previously observed in traders. We then tested for the utility and probability weighting functions underlying their risk taking and found that participants became more risk-averse. We also observed that the weighting of probabilities became more distorted among men relative to women. These results suggest that risk preferences are highly dynamic. Specifically, the stress response calibrates risk taking to our circumstances, reducing it in times of prolonged uncertainty, such as a financial crisis. Physiology-induced shifts in risk preferences may thus be an underappreciated cause of market instability.

SUBMITTER: Kandasamy N

PROVIDER: S-EPMC3948282 | biostudies-literature | 2014 Mar

REPOSITORIES: biostudies-literature

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Cortisol shifts financial risk preferences.

Kandasamy Narayanan N Hardy Ben B Page Lionel L Schaffner Markus M Graggaber Johann J Powlson Andrew S AS Fletcher Paul C PC Gurnell Mark M Coates John J

Proceedings of the National Academy of Sciences of the United States of America 20140218 9

Risk taking is central to human activity. Consequently, it lies at the focal point of behavioral sciences such as neuroscience, economics, and finance. Many influential models from these sciences assume that financial risk preferences form a stable trait. Is this assumption justified and, if not, what causes the appetite for risk to fluctuate? We have previously found that traders experience a sustained increase in the stress hormone cortisol when the amount of uncertainty, in the form of market ...[more]

PMID: 24550472

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Project description:Increasing breastfeeding rates have been associated with reductions in disease in babies and mothers as well as in related costs. 'Nourishing Start for Health (NoSH)', a financial incentive scheme has been proposed as a potentially effective way to increase both the number of mothers breastfeeding and duration of breastfeeding.To establish women's relative preferences for different aspects of a financial incentive scheme for breastfeeding and to identify importance of scheme characteristics on probability on participation in an incentive scheme.A discrete choice experiment (DCE) obtained information on alternative specifications of the NoSH scheme designed to promote continued breastfeeding duration until at least 6 weeks after birth. Four attributes framed alternative scheme designs: value of the incentive; minimum breastfeeding duration required to receive incentive; method of verifying breastfeeding; type of incentive. Three versions of the DCE questionnaire, each containing 8 different choice sets, provided 24 choice sets for analysis. The questionnaire was mailed to 2,531 women in the South Yorkshire Cohort (SYC) aged 16-45 years in IMD quintiles 3-5. The analytic approach considered conditional and mixed effects logistic models to account for preference heterogeneity that may be associated with a variation in effects mediated by respondents' characteristics.564 women completed the questionnaire and a response rate of 22% was achieved. Most of the included attributes were found to affect utility and therefore the probability to participate in the incentive scheme. Higher rewards were preferred, although the type of incentive significantly affected women's preferences on average. We found evidence for preference heterogeneity based on individual characteristics that mediated preferences for an incentive scheme.Conclusions Although participants' opinion in our sample was mixed, financial incentives for breastfeeding may be an acceptable and effective instrument to change behaviour. However, individual characteristics could mediate the effect and should therefore be considered when developing and targeting future interventions.

Dataset Information

Cortisol shifts financial risk preferences.

Publications

Cortisol shifts financial risk preferences.

Similar Datasets

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