Cortisol meets GARP: The Effect of Stress on Economic Rationality

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Abstract

Rationality is a fundamental pillar of Economics. It is however unclear if this assumption holds when decisions are made under stress. To answer this question, we design a laboratory experiment where we exogenously induce physiological stress in participants and test the consistency of their choices with economic rationality. We induce stress with the Cold Pressor test and measure it by assessing individuals’ cortisol levels in saliva. Economic rationality is measured by the consistency of participants’ choices with the Generalized Axiom of Revealed Preference (GARP). We find that participants exposed to the stress manipulation experience a significant increase in cortisol levels compared to those in the placebo group. However, differences in cortisol levels do not affect the consistency of choices with GARP. Our findings provide strong empirical support for the robustness of the economic rationality assumption.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages17
Volume2018-045
Publication statusPublished - 6 Nov 2018

Publication series

NameCentER Discussion Paper
Volume2018-045

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Keywords

  • economic rationality
  • GARP
  • Physiological Stress
  • Cortisol

Cite this

Cettolin, E., Dalton, P., Kop, W., & Zhang, W. (2018). Cortisol meets GARP: The Effect of Stress on Economic Rationality. (CentER Discussion Paper; Vol. 2018-045). Tilburg: CentER, Center for Economic Research.