Risk-taking in hot weather: evidence from Powerball sales

Xueying Lyu and Feng Zhu

Applied Economics, 2024, vol. 56, issue 58, 8394-8421

Abstract: Weather and climate changes have been found to affect various socioeconomic outcomes, but the mechanisms that underlie these effects are not fully understood. This article examines the effect of temperature on risk-taking behaviour using daily weather and Powerball sales data in the U.S. The results show that a 1 degree Fahrenheit increase in daily maximum temperature, on average, leads to a 0.30% increase in the Powerball sales in the county. We also find that individuals tend to opt for riskier options on higher-temperature days. Alternative explanations for these effects, such as avoidance behaviour and the income effect, are ruled out as possible drivers of these effects. Our article provides new insights into a potential yet undiscovered channel through which temperature, or more broadly, weather and climate changes can influence socioeconomic outcomes. The findings also have important implications for policymakers concerned about weather and climate changes and their effects on human behaviour.

Date: 2024
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DOI: 10.1080/00036846.2023.2290593

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