People make riskier choices when stressed, and here’s why

When people are stressed, they make riskier decisions. The biggest factor behind this change in behavior is a decrease in “loss aversion,” according to a recent study from University of Arkansas researchers published in the journal Psychoneuroendocrinology. Loss aversion is the human tendency to be more affected by loss than gain. In other words, the pain of losing $100 is greater than the joy of winning $100.

The researchers also discovered that the effects of stress are different for men and women. In general, stress has a greater impact on men’s decision making. Under stress women are also better at predicting the outcome of a decision, while men have a better grasp of consequences of that outcome.

“In my own life, if I’m stressed, I’ll wait to make a decision that could have potential loss implications,” said Grant Shields, assistant professor of psychological science and the study’s lead author.

Zach Gray, a doctoral student in psychology, and Trey Malone, a former U of A agricultural economist now at Purdue University, are also authors on the paper.

In the study, 147 participants were placed under stress and asked to make hypothetical financial decisions.

“Financial risk is easy to assess, because people have a pretty good idea about what they would do with their own money,” Shields said.

“My research was aimed at understanding these component processes that go into that calculus,” Shields said.

The participants’ decisions were analyzed using cumulative prospect theory, which proposes that decisions are driven by four factors: loss aversion, risk aversion, randomness — or stochasticity — in choices, and probability distortion, which is the tendency to overweight unlikely outcomes and underweight likely outcomes. For example, probability distortion explains why people who buy lottery tickets focus on the small chance of winning rather than the greater likelihood of losing.

Cumulative prospect theory is widely used by behavioral economists, but fewer studies have looked at how stress affects these decision making factors.

In today’s world, taking greater risks when stressed is probably not a good strategy. But Shields speculates there may be an evolutionary explanation for the behavior.

“If you’re an organism that’s being hunted or chased by another, then it makes sense to do stuff that you wouldn’t otherwise. Perhaps making a risky decision is better than staying put,” he said.