State Dependent Valuation: The Effect of Deprivation on Risk Preferences

The internal state of an organism affects its choices. Previous studies in various non-human animals have demonstrated a complex, and in some cases non-monotonic, interaction between internal state and risk preferences. Our aim was to examine the systematic effects of deprivation on human decision-making across various reward types. Using both a non-parametric approach and a classical economic analysis, we asked whether the risk attitudes of human subjects towards money, food and water rewards would change as a function of their internal metabolic state. Our findings replicate some previous work suggesting that, on average, humans become more risk tolerant in their monetary decisions, as they get hungry. However, our specific approach allowed us to make two novel observations about the complex interaction between internal state and risk preferences. First, we found that the change in risk attitude induced by food deprivation is a general phenomenon, affecting attitudes towards both monetary and consumable rewards. But much more importantly, our data indicate that rather than each subject becoming more risk tolerant as previously hypothesized based on averaging across subjects, we found that as a population of human subjects becomes food deprived the heterogeneity of their risk attitudes collapses towards a fixed point. Thus subjects who show high-risk aversion while satiated shift towards moderate risk aversion when deprived but subjects who are risk tolerant become more risk averse. These findings demonstrate a more complicated interaction between internal state and risk preferences and raise some interesting implications for both day-to-day decisions and financial market structures.