Cortisol meets GARP: The effects of stress on economic rationality

Elena Cettolin*, Patricio Dalton, Willem Kop, Wanqing Zhang

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

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
JournalExperimental Economics
DOIs
Publication statusE-pub ahead of print - Sep 2019

Fingerprint

Economic rationality
Cortisol
Revealed preference
Axiom
Rationality
Saliva
Economics
Robustness
Manipulation
Laboratory experiments

Keywords

  • economic rationality
  • GARP
  • physiological stress
  • cortisol

Cite this

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title = "Cortisol meets GARP: The effects of stress on economic rationality",
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.",
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author = "Elena Cettolin and Patricio Dalton and Willem Kop and Wanqing Zhang",
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Cortisol meets GARP: The effects of stress on economic rationality. / Cettolin, Elena; Dalton, Patricio; Kop, Willem; Zhang, Wanqing.

In: Experimental Economics, 09.2019.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Cortisol meets GARP: The effects of stress on economic rationality

AU - Cettolin, Elena

AU - Dalton, Patricio

AU - Kop, Willem

AU - Zhang, Wanqing

PY - 2019/9

Y1 - 2019/9

N2 - 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.

AB - 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.

KW - economic rationality

KW - GARP

KW - physiological stress

KW - cortisol

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DO - 10.1007/s10683-019-09624-z

M3 - Article

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SN - 1386-4157

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