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Cortisol meets GARP: The Effect of Stress on Economic Rationality

Elena Cettolin (), Patricio Dalton (), Willem Kop and Wanqing Zhang
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Willem Kop: Tilburg University, Center For Economic Research
Wanqing Zhang: Tilburg University, Center For Economic Research

No 2018-045, Discussion Paper from Tilburg University, Center for Economic Research

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.

Keywords: economic rationality; GARP; Physiological Stress; Cortisol (search for similar items in EconPapers)
JEL-codes: C90 C91 D01 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-upt
Date: 2018
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