4.6 Article

How does decision-making change during challenging times?

Journal

PLOS ONE
Volume 17, Issue 7, Pages -

Publisher

PUBLIC LIBRARY SCIENCE
DOI: 10.1371/journal.pone.0270117

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Funding

  1. Regione Piemonte, European Structural and Investment Funds

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Prospect theory suggests that individuals' decision-making attitudes are influenced by cognitive biases, and are prone to change in the presence of global challenging events. This study replicated previous research and found significant increase in risk aversion during uncertain times. The authors suggest that this phenomenon can be explained by the effects of stress on decision making.
Prospect Theory, proposed and developed by Kahneman and Tversky, demonstrated that people do not make rational decisions based on expected utility, but are instead biased by specific cognitive tendencies leading to neglect, under- or over- consider information, depending on the context of presentation. In this vein, the present paper focuses on whether and how individual decision-making attitudes are prone to change in the presence of globally challenging events. We ran three partial replications of the Kahneman and Tversky (1979) paper, focusing on a set of eight prospects, after a terror attack (Paris, November 2015, 134 subjects) and during the Covid-19 pandemic, both during the first lockdown in Italy (Spring 2020, 176 subjects) and after the first reopening (140 subjects). The results confirm patterns of choice characterizing uncertain times, as shown by previous literature. In particular, we note significant increase of risk aversion, both in the gain and in the loss domains, that consistently emerged in the three replications. Given the nature of our sample, and the heterogeneity between the three periods investigated, we suggest that the phenomenon we present can be explained stress-related effects on decision making rather than by other economic effects, such as the income effect.

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