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Does Anxiety Improve Economic Decision-Making?

Ian Crawford, Carl-Emil Pless

Abstract

We study the associations between everyday economic decision-making quality and people's emotional states. Using high-frequency, highly disaggregated consumer "scanner" data, we show that the cost of poor decision-making is substantial, on average equal to around half of day-to-day consumption budgets. While material circumstances help explain decision-making quality, how people feel about those circumstances is equally important. Contrary to evidence that stress and worry impair performance in settings where distraction is costly, we find these same feelings are associated with improved decision-making for frequently made consumption choices. This is consistent with worry increasing attentiveness to decisions within households' locus of control.

Does Anxiety Improve Economic Decision-Making?

Abstract

We study the associations between everyday economic decision-making quality and people's emotional states. Using high-frequency, highly disaggregated consumer "scanner" data, we show that the cost of poor decision-making is substantial, on average equal to around half of day-to-day consumption budgets. While material circumstances help explain decision-making quality, how people feel about those circumstances is equally important. Contrary to evidence that stress and worry impair performance in settings where distraction is costly, we find these same feelings are associated with improved decision-making for frequently made consumption choices. This is consistent with worry increasing attentiveness to decisions within households' locus of control.
Paper Structure (21 sections, 5 equations, 4 figures, 9 tables)

This paper contains 21 sections, 5 equations, 4 figures, 9 tables.

Table of Contents

  1. Introduction
  2. Literature and Contributions
  3. Data
  4. Transactions
  5. Personality Traits
  6. Disaggregated Traits
  7. Principal Components
  8. Sociodemographic Information
  9. Measuring Decision-Making Quality
  10. Decision Quality
  11. Dealing with Missing Transaction Prices
  12. Results
  13. The Distribution of Decision-Making Quality
  14. Correlates of Decision-Making Ability
  15. Unpacking the Principal Components
  16. ...and 6 more sections

Figures (4)

  • Figure 1: A violation of rational choice.
  • Figure 2: \ref{['fig:inefficiency']} shows the violation of rational choice in \ref{['fig:violation']} as a failure to optimize efficiently; \ref{['fig:instability']} shows it as a change in preferences.
  • Figure 3: The distribution of $\widehat{AEI}$. The vertical dashed line in the figure represents the mean.
  • Figure 4: Selected predictors for Lasso, Group Lasso, and the Sparse Group Lasso. The figure presents the 20 variables that are most frequently selected across models. Below the figure, we also provide a summary of model statistics for the three different models.

Theorems & Definitions (3)

  • Definition 1: GARP
  • Definition 2: GARPe
  • Definition 3: Afriat Efficiency Index